Intel Faces Empty Building, Business Crossroads

January 24, 2014

Peter O'Dowd - KJZZ
President Barack Obama spoke in front of the construction of Intel's Fab 42 in Chandler, Ariz. in January 2012.
via Intel.com
An artist's rendering of Fab 42, Intel's $5 billion chip manufacturing facility in Chandler, Ariz. that is complete, but empty.

Earlier this month, Intel announced it would delay the opening of a massive $5 billion factory in Chandler, Ariz. Then, a few days later the computer-chip maker made headlines again when it said it would cut more than 5,000 jobs from its global workforce.

What's going on inside Intel?

As far as factories go, this one was about as ballyhooed as they come. In 2012, President Barack Obama visited Intel’s Ocotillo campus in suburban Phoenix the day after his State of the Union address.

Obama stood beneath a towering crane at the construction site — a crane so big it could lift 4,000 tons. The president then boasted that Intel’s factory, known as Fab 42, would someday crank out high-powered computer chips for laptops and phones. And keep good jobs on American soil.

"I’m here because the factory that’s being built behind me is an example of an America that’s within our reach, an America that attracts the next generation of good manufacturing jobs," the president said two years ago. "An America where we build stuff and make stuff and sell stuff all over the world."

Oh, what a difference two years makes.

That multi-billion dollar factory he was raving about is finished, but there’s nothing happening inside it. Intel wouldn't meet at the site, but instead sent a statement that said the new factory space would be set aside for future use.

Many of the 1,000 or so jobs the project was supposed to have created have been relocated to other buildings on this sprawling industrial complex.

"When I think about Intel, it’s a company in transition," said Morningstar Analyst Andy Ng, who follows the semiconductor industry.

Ng said Intel hit headwinds when demand for personal computers plummeted in favor of tablets and mobile phones. Indeed, the company’s stock hasn’t really moved since the day Obama made his visit to Arizona.

"When you look at what Intel was planning for Chandler, I don’t think they figured the PC market and the demand for PC processors would decline so quickly," Ng said.

The problem is that 60 percent of Intel’s business comes from the microprocessors inside PCs. The company said this month that revenue would be flat in 2014, and that’s a big reason for the 5 percent haircut in its global workforce by the end of the year.

"Remember this is a big organization too, right, so you can’t just right the ship overnight," Ng said.

But after years of losing ground, some industry experts believe Intel has recognized its imbalance. Ng says it’s transitioning well into the race for smartphones and tablets. He sees potential in the company’s push for building cloud storage and server capacity for the crush of new mobile devices popping up around the world. And there’s something else.

"There is one fork in the road for Intel that it is thinking about going down," said Roger Kay, who follows the industry with Endpoint Technologies Associates. "And that is becoming a foundry, or making parts for other companies."

Kay says Intel has the industry’s most advanced manufacturing techniques and smaller chip designers without the same expertise would pay to fill some of the empty factory space in Arizona. Still, Kay says this potential doesn’t take the sting out completely.

"I imagine that neither Obama nor Intel would like to be reminded of that day when they proclaimed the factory the best thing since sliced bread for the American public. It’s true it’s kind of a setback," Kay said.

For its part, Intel won’t say when it plans to remove the mothballs from Fab 42. But the company does point out that a $300 million research building will open nearby within six months.