Intel Announces Stunning Domestic Investment
Anyone who has covered Intel during its 41-year history knows the company's strategy during tough economic times: You gotta spend money to make money, and you can't grow the business without investing in its future.
It was the hallmark of former CEOs Bob Noyce, Andy Grove, Craig Barrett, and now Paul Otellini. With today's announcement, Otellini's got them all beat.
Otellini used the podium at the Economic Forum in Washington, DC this morning to unveil a $7 billion manufacturing initiative over the next two years to add capacity and upgrade existing wafer fabrication plants in Arizona, New Mexico and Oregon, with plans to add 7,000 high-wage jobs in the process.
It's the largest plan of its kind in Intel's history, and shows the company is preparing for a fairly sizeable economic turnaround.
More importantly, the company is earmarking the entire investment in domestic manufacturing and jobs at a time when so many other companies have expanded operations overseas, taking American jobs with them.
"We're investing in America to keep Intel and our nation at the forefront of innovation," Otellini said in this morning's speech.
(Listen to one of his comments from this morning's speech in the adjacent box. I will also be talking to Mr. Otellini today on Closing Bell in a First On CNBC interview about all this. We'll post the complete interview here as well this afternoon.)
Couple Intel's news with the announcement of a $4 billion bond offering from Cisco Systems and you start to wonder whether there might be something to all those analysts' comments that the tech community would indeed be the sector to pull this nation out of recession. It stands to reason: Intel is sitting on $12 billion in cash and is apparently ready to invest; Cisco sits atop a $29 billion mountain of cash, and is apparently raising more though the company isn't saying why, though on last week's earnings conference call, CEO John Chambers said he believed the US would be the first region to recover from the economic downturn though he didn't say when that would be; we already know the sizeable cash positions of IBM, Microsoft, Google, Hewlett-Packard and so many others. Otellini issued a kind of call to arms this morning, imploring other tech leaders to follow Intel's example, and relax the purse strings to begin their investments in the future now.
While the company isn't requesting any assistance from the trillion dollar economic stimulus package, it seems that Intel does recognize a new climate for significant spending, and wants to be in position to meet what it suspects will a measurable increase in technology demands.
The Intel news could not come at a better time: We spend an enormous amount of time focused on the massive layoffs gripping this nation. President Obama just last night talked about the 3 million jobs this country lost last year, and Treasury Secretary Tim Geithner this morning said the nation lost another 600,000 jobs last month alone. The tech community has been particularly hard hit, losing well over 100,000 jobs in January. Intel itself announced 6,000 job cuts recently, though the company didn't specify how many of those positions will come from facilities based in the US. That's why its news this morning is so important: While so many investors are worried about the future, whether the recession we're suffering is a "new normal" that will last indefinitely, Intel is saying this morning that business will improve, that the economy will turnaround, that innovation is alive and well, and that the only way to seize on the opportunity is to invest in that future. And the company is doing so with 7 billion exclamation points.
Intel is certainly not the panacea, and despite the news this morning, it is still only a single company. But as my colleague Larry Kudlow is fond of saying, it's about "mustard seeds." It just takes one to turn an entire field yellow with mustard seed blooms. What's striking about the Intel news is that it isn't some decade-long initiative. The company will be spending the $7 billion over just the next two years. That says something about the company's optimism and its time for economic turnaround. The tell-tale sign will be whether other companies step up and start to spend.
In the meantime, Intel's news is important, and a welcome respite from Chrysler, General Motors, and Ford. Here's a leader of the next generation of American industry. And it's hanging a big fat "We're Hiring" sign on the front door.