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President Barack Obama spoke at Intel's Fab 42 in Arizona in 2012. Intel now says it doesn't know when the chip factory will open.
(AP photo)
Intel has indefinitely postponed opening a new, $5 billion factory in Arizona amid slack demand in the chipmaker’s business.
Construction began three years ago, but The Oregonian reported last spring that manufacturing tools slated for the new Fab 42 in Arizona were being diverted to Intel's factories in Hillsboro. The Arizona Republic reported this morning that Intel will make its new, 14-nanometer chips in existing Arizona factories and mothball Fab 42.
The decision to delay production in Arizona has “no impact” on Intel operations in Oregon, said corporate spokesman Chuck Mulloy. He said the delay on Fab 42 reflects Intel’s ability to use its existing manufacturing space more efficiently.
Intel’s factories, known as fabs, are running at about 80 percent capacity and Mulloy said that the company can meet current demand for its chips without spending the billions of dollars required to equip a new fab.
“If we can maintain that 80 percent capacity with the existing space, why spend the additional capital?” Mulloy said.
Intel rolls out new manufacturing technology on a two-year cycle called a process node, and Mulloy said Intel hasn’t determined whether Fab 42 would open with its 10-nanometer node in two years, or sometime later.
“We left it open so we could have maximum flexibility with whatever node we want to do it with,” he said.
Intel reports fourth-quarter financial results Thursday. It has forecast that 2014 will be its third straight year of flat revenue, hindered by ebbing PC sales as consumers shift to smartphones and tablets. Intel’s PC group accounts for nearly two-thirds of its business.
Intel develops each new generation of microprocessor in research factories at its Ronler Acres campus in Hillsboro, then replicates the manufacturing process at factories – called fabs – in Arizona, New Mexico, Ireland and Israel. It makes older generations of chips at a fab in northern China.
A new, $3 billion Hillsboro research factory called D1X opened last year to begin development of the company’s 10-nanometer manufacturing technology. Construction continues on a second, identical phase of that project due to open in 2016.
The Arizona delay is the latest in a string of Intel manufacturing shifts. The company announced last year that it will shut an obsolete factory in Massachusetts and lay off 400 at an aging factory in New Mexico.
Construction on Fab 42 began in 2011 with great fanfare; Intel said at the time that it planned to complete the facility near Phoenix in 2013, and invited President Barack Obama to the construction site in March 2012.
Most of a fab’s operating cost comes from the multimillion-dollar manufacturing tools that make the chips, but just building the structure likely cost Intel around $1 billion, estimates Jim McGregor, a veteran Intel watcher with TIRIAS Research in Arizona. Delaying production is “obviously a setback,” McGregor said, since Intel won’t be recouping that investment anytime soon.
But the chip industry has changed a lot since work began on Fab 42 in 2011. Intel’s business stopped growing and new manufacturing technologies that Fab 42 was built to accommodate are taking longer to arrive than the industry had expected.
Tool manufacturers are developing a new lithography process, called extreme ultraviolet (EUV), which will enable smaller features on the computer chip. But EUV has thus far been able to meet the reliability standards required for mass production.
And the industry’s push toward larger, 450-millimeter silicon wafers is moving slowly as demand increases for smaller microprocessors used in mobile devices and appliances. Larger wafers reduce production costs because manufacturers can fit more chips on a wafer, but McGregor said it’s harder to cut smaller chips on a bigger wafer.
Fab 42 could remain closed, McGregor said, until Intel generates more demand by making headway on mobile chips and other new gadgets, or until new manufacturing technologies are ready.
Given the high cost of outfitting a fab, he said, “Intel has to evaluate its resources and only bring on new fabs and new solutions when it makes sense.”
-- Mike Rogoway; twitter: @rogoway; phone: 503-294-7699