Intel Shuttering Chip Manufacturing Plants, Job Cuts Could Follow

Intel announces that it will close or stop production at five of its manufacturing facilities, including plants in Oregon and California. The closings will take place in 2009 and could affect between 5,000 and 6,000 employees once all of Intel's plans are finalized. Intel says these closings will not affect its production of 45-nanometer processors used in desktops and notebooks or its upcoming line of 32-nm chips.

Intel is planning to close or halt chip production at five of its manufacturing facilities, including plants in Oregon and California, within the next 11 months of 2009, which could affect at least 5,000 Intel employees.

Intel, which remains the world's largest semiconductor company, announced the closings Jan. 21, a little more than a week after it released its fourth-quarter financial numbers. Although Intel made a profit during the quarter, its revenues were below earlier expectations, and CEO Paul Otellini said Intel has seen demand for its processors slow down as consumers and business bought fewer PCs in the last few months of 2008.

In a statement, Intel said it would close two assembly test facilities in Penang, Malaysia, as well as one facility in Cavite, Philippines.

In addition, Intel plans to stop production at Fab 20 in Hillsboro, Ore., which is an older 200-millimeter wafer facility. The company also plans to stop wafer production at D2, located in Santa Clara, Calif., near Intel's corporate headquarters.

Together, the closing could eliminate between 5,000 and 6,000 jobs within the company, which now has more than 83,000 employees worldwide. Some of those workers will be offered positions at those facilities that remain open, said Chuck Mulloy, an Intel spokesperson.

Intel could possibly save millions of dollars in 2009 by closing these facilities, according to at least one analyst. However, Intel's statement and its spokesperson did not say exactly how much the company would save by closing these plants.

While Intel routinely checks its worldwide manufacturing network to see which facilities it can close or repurpose for other tasks, Mulloy said the tough economic situation meant that Intel had to accelerate that process in order to bring its manufacturing capacity in line with current chip demand.

"In that environment, we accelerated much longer-term plans to take these factories offline," Mulloy said. "They would have come off the factory network at some time but this just accelerates it."

Of the five facilities that Intel is closing, most were plants using older 200-mm technology. For example, the Oregon facility has been in existence since 1988. Most of Intel's microprocessors are now built using 300-mm silicon wafers, although some of the company's NAND flash chips and other products use older 200-mm technology.

In an interview, Mulloy said the closing will not stop Intel from continuing to make its new 45-nanometer microprocessors. Intel also plans to switch to 32-nm chip manufacturing later in 2009.

Right now, those 32-nm processors, code-named Westmere, are being developed at another facility in Oregon, and when those chips are ready for full production, Intel intends to manufacture them at one or more facilities throughout the world. Mulloy said the plants that are being considered for 32-nm production include facilities in Oregon, New Mexico, Arizona, Ireland and Israel.

John Spooner, an analyst with Technology Business Research, said Intel is in a unique position since it has many more chip manufacturing facilities, or fabs, than other semiconductor companies do. In order to reduce costs at a time when demand for PCs, server systems and other hardware has slowed, closing or halting production makes solid financial sense for the company.

"The bottom line is that Intel has more capacity than it can handle right now," Spooner said. "I think part of that has to do with the market and Intel's customers telling the company that they are going to hold off orders right now and into the next quarter or so. In turn, Intel has to scale back production so it doesn't have a large amount of inventory on hand. One way to scale back production is to close older facilities, which are also not that efficient."