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Intel Builds Wafer Fab in China

Alexei Oreskovic

Intel(INTC Quote) announced plans to build a chip-fabrication facility in China, ending weeks of speculation that the world's No.1 chipmaker was looking East to construct its next major factory.

The $2.5 billion facility, dubbed Fab 68, is slated for completion in 2010 and will feature equipment capable of processing 300-millimeter silicon wafers, more efficient than the the 200-millimeter wafers used by some chipmakers.

The fab will be located in the Northeast coastal city of Dalian, with construction due to begin later this year.

The announcement marks a significant change in Intel's manufacturing plan. The Santa Clara, Calif., chipmaker has several facilities in China, but they are devoted to chip test and assembly, which require relatively high staff levels and can thus benefit from operating in a low-cost region like China.

A wafer fabrication facility, which uses expensive lithography equipment to etch tiny circuits into silicon, would be Intel's first in Asia and would represent the first time since 1992 that Intel has opted to build a fab from the ground up at an entirely new location rather than adding on to an existing facility.

"China is our fastest-growing market and we believe it's critical that we invest in markets that will provide for future growth to better serve our customers," CEO Paul Otellini said in a statement.

Reports that Intel was considering building a fab in Dalian surfaced earlier this month, when the Web site of a Chinese government planning agency posted a statement that it had approved plans for Intel to build a facility. The site later took down the announcement, and Intel declined to comment until Monday.

One sticking point is the export control regulations that the U.S. imposes on technology exports to China. Companies are prohibited from exporting leading-edge manufacturing equipment that might have military, as well as commercial, uses.

Intel may hope to avert some of the regulatory hurdles by outfitting the facility with older chipmaking equipment.

Intel said in the announcement that Fab 68 will initially produce so-called chipsets, the chips that support the microprocessors at the heart of PCs and servers. Chipsets can be made using less-advanced manufacturing processes than those used to make microprocessors.

Intel did not disclose which manufacturing process Fab 68 would use, although previous reports indicated the facility would focus on making chips with 90-nanometer-wide circuits. That's one generation behind Intel's current 65-nanometer microprocessors and would be even further behind by the facility's 2010 launch.

Shares of Intel were off 13 cents at $19.14 in midday trading Monday.