Intel Got Its New China Fab for a Bargain, Analyst Says

IDG News Service — Intel may have received up to US$1 billion in incentives from the Chinese government to build its new chip factory in the country, a Gartner analyst said on Monday.

The chip maker will also benefit from China's low construction costs, and equipment for the factory will be transferred from an older plant, making Intel's cash outlay for the new plant negligible, wrote Gartner analyst Bob Johnson.

That helps to explain why Intel agreed to build the factory, which marks a departure from the company's usual practices. Intel normally builds state-of-the-art chip plants, but in this case it is building a new factory that will use a relatively old manufacturing technology.

"This new fab is a radical departure from standard Intel practice," Johnson said, but is also "completely consistent with Intel's demonstrated ability to get the most from its investment dollar. The bottom line is that Intel will get an older fab in a new location for minimum cash outlays."

Intel has not said how much it received in incentives, but CEO Paul Otellini indicated last week that support from the Chinese government played a major role in the company's decision to build the $2.5 billion factory in Dalian, on China's northeastern coast.

"Incentives are a normal part of capital intensive semiconductor investment. But we don't disclose the specifics of those incentives," said Nick Jacobs, an Intel spokesman in Singapore.