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Intel Breaks Ground In China For Silicon Fabrication Plant

Intel Corp. held a groundbreaking ceremony Saturday for its first chip factory in China, expanding its presence in the booming Chinese computer industry and boosting Beijing's campaign to lure foreign high-tech investment.

The US$2.5 billion facility, one of the biggest single foreign investments in China, will be Intel's first silicon-wafer fabrication plant in Asia and its eighth worldwide. It is due to open in 2010 with a work force of 1,200.

The new factory, dubbed "Fab 68," will produce chipsets, which connect microprocessors to other computer components. Intel says it chose not to equip the plant with its most advanced processes because of U.S. restrictions on high-tech exports.

The groundbreaking ceremony was attended by Intel Chairman Craig Barrett, a deputy chairman of the Chinese Cabinet's main planning agency and the mayor of this northeastern port city, which is a growing center for the software and computer industries.

"China is obviously such a booming economy. We very much felt like it was important to be near our customers," said Kirby Jefferson, the Dalian plant's general manager, in an interview ahead of the ceremony.

Santa Clara, California-based Intel says China already is its second-largest market after the United States and is expected to be the world's biggest information technology market by 2010.

Foreign investment in China's computer and other high-tech industries is growing as companies set up factories and research centers. But the communist government wants more and offers tax breaks and other incentives to lure investors.

Premier Wen Jiabao appealed this week to foreign companies to do more research in China. He promised to protect intellectual property, a key concern for many companies, which are reluctant to transfer advanced know-how to China for fear it will be stolen amid rampant product piracy.

"What we hope is that growth enterprises and emerging companies will base more of their research and development centers in China," Wen said Thursday in Dalian at the World Economic Forum, a gathering of Chinese and foreign business leaders.

The Intel investment also gives a boost to government efforts to develop China's northeast, a former heartland for state industry that has suffered a steep decline.

Intel picked China because of its market and growing pool of skilled workers, rather than for the low labor costs that attract other manufacturers, Jefferson said. He said because of the huge investment in equipment for chip production, labor is only a small fraction of total costs.

"It's really that we're coming here simply because of the market," Jefferson said.

Intel also has "wafer fabs" in the U.S., Ireland and Israel. It has assembly and test facilities in Costa Rica, Malaysia and the Philippines. In China, the company has factories in Shanghai and the western city of Chengdu making memory chips, microprocessors and other products, and research centers in Beijing and Shanghai.

Dalian will be part of a worldwide network of two to three Intel plants making chipsets, with its output sold both in China and abroad, Jefferson said.

The company is still deciding which level of technology to use in Dalian, Jefferson said. He said it would be either a 65- or a 90-nanometer process, which can make circuits 65 or 90 billionths of a meter wide. That is considered to be one to two generations behind Intel's most advanced processes, which can make circuits 45 nanometers wide.

Intel says it chose not to apply for a U.S. license to transfer its most advanced process to China because of restrictions on high-tech exports to countries where Washington has security concerns.

But Intel plans to upgrade the Dalian facility as U.S. regulations change, Jefferson said.