Intel set to spend €345m for second China plant

INTEL CORP, the world's biggest computer-chip maker, plans to invest $375 million (€345m) to build a second factory in China, expanding to take advantage of lower-cost manufacturing in the company's second-largest market.

Intel will invest an initial $200m and hire 675 people for a plant to assemble and test semiconductors in the southwestern city of Chengdu, the company said. The company, which already has a plant in Shanghai, plans to spend as much as $175m more and add workers later. The venture is a boost for China's efforts to develop its chipmaking industry and for the government's campaign to attract investment to the country's underdeveloped western hinterlands.

Asia-Pacific, where Intel is building more factories to take advantage of lower labour costs and rising demand, was the only region where the US company increased sales last year.

Intel expects construction on the Chengdu plant to start in the first half of 2004 and the site to begin operating in 2005.

"We weren't compromising in our choice of Chengdu," Intel China President Tan Wee Theng said. "We took the quality of labour, the infrastructure and other factors into consideration of various cities in China."

The Chengdu operation will package chipsets for Intel's Pentium 4 processor, Tan said, with products made at the plant to be sold worldwide.

Intel joins other overseas chipmakers including Phoenix, Arizona-based ON Semiconductor Corp. in investing in Sichuan. ON Semiconductor last year said it would increase investment in its Leshan-Phoenix Semiconductor venture, becoming the first overseas company to make six-inch silicon wafers in western China. The Leshan venture, set up in 1995, employs 1,800 people.

Intel is investing in plants and offices in countries such as China, the Philippines, Malaysia and India to take advantage of lower wages and increasing appetite for electronics. The company's Asia-Pacific sales rose 21% last year to $10.1 billion. Sales in the US, Europe and Japan all fell.

China is now Intel's second-largest market, Tan said. All Intel's test and assembly operations are in Asian countries.

It has a $500m factory in the Pudong development zone in eastern Shanghai, spokesman Chuck Mulloy said. It also has marketing and research facilities in the country.

Intel would consider building a chip-manufacturing plant in China if the US lifts security restrictions that prevent the export of advanced technology, company chief executive Craig Barrett said last week.

Barrett yesterday announced plans to spend $40m to set up a plant in Malaysia for manufacturing and designing chipsets, which work with processors to manage personal-computer functions such as memory and graphics display.

The company plans to spend $3.5bn to $3.9bn this year on equipment and factories, down from $4.7bn in 2002.

It has budgeted $4.2bn for researching and developing new products, up from $4.03bn last year.