Intel CEO On Plan To Invest $7 Billion In U.S.
MELISSA BLOCK, Host:
Now to big investment in tiny technology. The computer chipmaker Intel announced plans today to spend $7 billion over the next two years to upgrade four factories in the U.S. - those plants in New Mexico, Arizona and Oregon. Intel says it's the most it's ever spent to upgrade to new microprocessing technology, in this case, chips that are 32 nanometers across, or about one millionth of an inch.
POST: And Intel's CEO, Paul Otellini, is here in Washington to urge other companies to invest for the future, especially in these troubled economic times. I asked Mr. Otellini how this plan fits with last month's announcement that Intel was laying off at least 5,000 workers in the U.S. and overseas.
BLOCK: What happened last month is that we are resizing our assembly test network. And we're also going to take some of the older factories in the U.S. down, and those were in sites like Oregon, where we are building the new factory. So, we will be able to use those workers and transition them to the new factories.
BLOCK: You said some of the jobs lost will be overseas. Some will also be here in this country.
BLOCK: Some will, yeah.
BLOCK: Any idea how many?
BLOCK: We didn't quantify that.
BLOCK: Majority? Less than half?
BLOCK: No, less than half.
BLOCK: Mm-hmm. If you look at Intel's numbers from the fourth quarter of last year, your company saw a 23 percent drop in revenue, 90 percent drop in net income, per share profit down 90 percent. And there were reports that you told employees last month that you couldn't rule out a loss in the first quarter of '09. If you take all that into account, how do you say this is the right time to spend $7 billion in upgrading our plants?
BLOCK: Well, part of it is, you have to look at the year in its entirety. And I think that 2008, while it was ended by a pretty bad quarter, was a very good year for us. As we look into 2009, we're assuming that the market momentum we saw at the end of '08 will continue for a while, and that's how we've sized the company.
BLOCK: But you're not looking, I mean - we're hearing gloom-and-doom scenarios all over the place of where the economy is headed, that we're in the recession, you hear the word depression - you are still looking at that and saying, we're going to spend $7 billion, we are we're going to upgrade these facilities.
BLOCK: You bet.
BLOCK: It's for the good of the company.
BLOCK: You bet. For two reasons: One is that this new technology will lower our costs. It'll give us better product, more competitive product and lower costs. So, it makes economic sense - assuming we're still in business - to do this. We believe that people will continue to want to buy computers, and so forth. If your computer broke tonight when you went home, you wouldn't wait for the recession to end to buy a new computer. It's an indispensable part of your life. So, that drives a lot of our conviction. And we see this moving into other areas, in terms of consumer electronics. Smarter and smarter phones are going to your pocket that carry the Internet. All of these kinds of products will benefit from this technology.
BLOCK: You're here in Washington, obviously, at a time of huge debate over government spending, and plans for stimulating the economy through the government. What do you see as the role of the private sector in that discussion?
BLOCK: I think that we have to take the lead in terms of reacting to what is being done here. What's being done here - in its essence - is a stimulus. Stimulus is meant to rebuild confidence, to open the spigots of capitalism again. Having Intel and other companies step forth and say, you know what, there will be a future. And at the end of recession, people are going to want to buy new products, not old stuff.
BLOCK: And what are you hearing from your fellow CEOs? Obviously, they're confronting as bleak an economic picture as everybody else.
BLOCK: Well, you know, they have given perspectives in time. You know, our perspective is that we make these investments now, and it will take us 18 to 24 months to bring them on line in totality, and then we'll be able to run those for another two years after that. So we're making a very long lead time - investments on where our technology is going. Other people in our industry, outside of the semiconductor industry, are making investments in a much shorter time scale. The factories, the kinds of things they do, you know, are six- month kind of investment cycles, not two, three, four years.
BLOCK: And what do you tell the ones who are really just trying to stay afloat right now?
BLOCK: We tell them that the same thing I just mentioned, which is that new technology is what pulls companies in technology out of recessions. Down cycles end. And when they end, you want to have the capacity. And the opportunity cost of not having that capacity when demand recovers is astronomical.
BLOCK: I understand you had a phone call last night with President Obama in advance of your announcement today. What did you talk about?
BLOCK: We talked a bit about the stimulus package in terms of the kinds things that I think are in it that are reflective of real investment that this country needs, in terms of investments in the National Science Foundation, you know, improving the quality of classroom infrastructure, health IT. My God, how long have we talked about that? We need to make that investment now to be able to attenuate the growth in health costs. Those kinds of things, green technology, I think are very good investments long overdue. It will help this country.
BLOCK: We have been talking with Paul Otellini. He's the CEO of Intel. Thanks very much for coming in.
BLOCK: You're welcome.
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Correction Feb. 11, 2009
The introduction to this story referred to "chips that are 32 nanometers across, or about 1 millionth of an inch." While the microprocessors are called "32-nanometer chips," the measurement refers to the size of the chip's transistors.