Intel Set to Spend $7 Billion to Upgrade US Factories

Intel plans to spend $7 billion upgrading its U.S. factories over the next two years, a sign that the recession hasn't extinguished chip makers' lust for cutting-edge equipment and engineering talent.

The Santa Clara-based company's investment, announced Tuesday by Intel CEO Paul Otellini at a speech in Washington, speaks to the need in the semiconductor industry to keep investing heavily, regardless of the economic climate.

Paul Sakuma / AP Exterior view of Intel headquarters in Santa Clara, California.

That will likely be a boon to companies that produce chip-making equipment, like Applied Materials and KLA-Tencor , and is another example of how Intel's deep pockets have kept smaller rival Advanced Micro Devices at bay.

AMD , having lost nearly $7 billion over the past two years, wants to break off its factories into a separate company to unload some debt and save money. A shareholder vote on the plan was scheduled for Tuesday morning. AMD is the world's No. 2 maker of personal-computer microprocessors, after Intel.

Intel says the latest investment is the most it has ever spent on a transition to new manufacturing technology.

Every couple of years, chip companies make the multibillion-dollar transition to new equipment that enables chips with smaller and smaller circuitry. The change lets them make each chip more powerful, and is essential to maintaining Moore's Law, the prediction by Intel co-founder Gordon Moore that the number of transistors on a chip will double about every two years.

Moore's Law has been the chip industry's benchmark for technological progress for more than 40 years, but chip makers are finding it harder to maintain because of physical limitations of the materials.

Intel said the $7 billion will pay for new machinery at factories in Oregon, Arizona and New Mexico, which will be outfitted to produce chips based on 32-nanometer technology. The most advanced chips are currently made with features as small as 45 nanometers.

But Intel's investment doesn't necessarily mean lots of new jobs will be created.

The money will pay the salaries of about 7,000 "high-wage, high-skill" jobs that already exist at those plants.

The investment comes as Intel is struggling with the worst PC market in years.

The company is cutting up to 6,000 manufacturing jobs by closing plants in Malaysia and the Philippines and stopping production at facilities in Oregon and California.

Intel is also closing a factory in China, where 2,000 workers will have their jobs shifted to other cities. Intel says those workers will be offered the chance to relocate.

Intel does three-quarters of its semiconductor manufacturing in the U.S.

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