There is more to the geographical decision by Intel Corporation (Nasdaq: INTC) than Israeli government grants. An updated forecast by Gartner Group last week predicts that the semiconductor industry is heading for a slowdown. It estimates that the market will amount to $299 billion in 2011, compared with $300 billion in 2010, but it predicts only 4.6% growth for 2012, much less than the robust growth predicted six months ago.
The reason for the bleaker forecast is directly related to macroeconomic concerns and consumer spending. These are reflected in the sharp drop in Gartner Group's predictions for PC sales from 10.9% growth in 2011 to 3.8% growth in 2012. The mood swing did not miss Intel, the world's largest chipmaker. Earlier this month, the British and Irish media reported that Intel had halted the upgrade of its Fab 24 in Ireland to 22 nanometer technology.
It is worth paying attention to the Irish fabs. The last time that Intel invested in a new Irish fab was in 2004, when it built a campus at Leixlip, which was Intel's most advanced fab at the time, producing wafers with 65 nanometer technology. Intel built its next state-of-the-art fab - 45 nanometer technology - in Israel, and it is now upgrading its Kiryat Gat Fab 28 to 22 nanometer technology.
Citi Capital Markets believes that Intel's actions on its Irish fabs means that the company will carry out the next upgrade to 15 or 10 nanometer technology, scheduled in 2013, in Ireland. Intel plans to invest $5 billion in the procurement of equipment for state-of-the-art production lines for the new fabs.
Intel's moves in Ireland also teach a lesson. In 2005, the Irish government announced that it would stop subsidizing Intel's fabs, after handing over ₤100 million for the setting up of the last production line. Intel, for various reasons, and possibly because of the halt in support, decided to look elsewhere. Ireland was left with technologies that this year will become second class in terms of innovation, which is bad news for the Irish economy.
Published by Globes [online], Israel business news - www.globes-online.com - on September 22, 2011
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