Shanghai, China -- After years of speculation, details emerged last week of Intel Corp.'s plans to build a 12-inch wafer fab in China. It's a coup for that country--Intel's second-largest market--but another blow to the U.S. chip-manufacturing industry, which has seen a steady exodus of fabs to overseas locations.
China's top planning commission has reportedly given Intel the green light to spend $2.5 billion on a 12-inch wafer plant, likely to be situated in the northern city of Dalian, that would use 90-nanometer technology to produce CPU chip sets. Intel has not confirmed the deal. "We have announced no plans and will not comment on speculation of this nature," an Intel spokesman said last week.
But sources familiar with the situation said an announcement is expected from Intel as soon as this week. Sources at Intel's equipment vendors also confirmed the deal.
An Intel fab in China could signal a loosening of U.S. export controls, giving U.S. semiconductor equipment makers a reason to be optimistic about increasing sales to China.
Still, Intel's gambit comes as U.S. export control policy is in disarray. One longtime observer characterized the debate over technology exports to China as "liquid dynamite," adding that U.S. export policy toward China is "teetering on the brink of unworkability."
Intel's plan for building a fab for chip sets in China may also be a steppingstone to larger projects. China's huge export market and growing domestic consumption have made it Intel's second-largest market for CPUs. The country's cell phone and consumer electronics markets are major consumers of NAND and NOR flash, making it a logical location for future production.
"More of the manufacturing will go to where the consumption is," said Bill McClean, an analyst with IC Insights Inc. (Scottsdale, Ariz.). "I'm not sure [Intel's decision] will open up the floodgates, but I'm expecting other companies will build fabs in China. Down the road, this could be the first of many fabs in China." Samsung, Toshiba and possibly AMD are considered likely candidates to follow Intel into China, he said.
But McClean added that it could be another 10 years before Intel builds a leading-edge fab in the People's Republic, "unless there is a dramatic change in the IP [intellectual property] policy in China."
News of the planned fab follows an announcement by Intel and memory maker Micron Technology Inc. that they will build a state-of-the-art memory facility in Singapore as part of their joint venture IM Flash Technologies LLC. IM Flash expects to break ground on the 12-inch facility this month and ramp it next year using 50-nm process technology. Intel also has fabs in Leixlip, Ireland, and in Jerusalem and Kiryal Gat, Israel. A new fab is under construction in Israel. The company's leading-edge fabs are located in Arizona, New Mexico, Oregon and Ireland.
Other companies have proven it's possible to ramp up an advanced fab in China. Foundry Semiconductor Manufacturing International Corp. (SMIC) runs a 12-inch wafer facility in Beijing and is building another in Shanghai. Hynix Semiconductor and STMicroelectronics have teamed in Wuxi to run a 12-inch fab for NAND flash. "It's one of the quickest ramp-ups we've ever had," said Bob Krysiak, general manager of ST's China operations.
That is not to downplay the political hurdles. To the chip industry's chagrin, the Bush administration has sought to tighten controls on high-tech goods shipped to China to keep sensitive technologies out of the hands of the country's military (see story at left). If Intel wins U.S. approval for a fab in China--and U.S. export officials were mum on the matter last week, saying they couldn't comment on a deal that hadn't been publicly confirmed--it may not signal a sea change in U.S. export control policy.
It's more likely that Intel is seeking a one-off approval from the Commerce Department to transfer its process technology to China, as well as bring in fab equipment from U.S. vendors such as Applied Materials Inc. and Varian Inc.
"In general, there is no standardized policy for making decisions about whether to grant export licenses for semiconductor-related sales to China," said Maggie Hershey, director of public policy at Semiconductor Equipment Materials International (SEMI).
Under current practices, Intel stands a good chance of persuading U.S. officials to OK the deal. Each application is reviewed by an interagency group that includes military officials, and the criteria usually include the reliability of the end user, the stated end use, the level of technology and the export compliance record of the exporter, Hershey said. In all those areas, Intel would score well.
But the chip industry faces a glaring lack of consensus on U.S. export policy. Donald Weadon, a Washington-based export attorney, argued that Congress has long insisted on a balance between robust trade and national security within a multilateral framework. He said unilateral China export rules skew that balance and disrupt trade relations.
"We've got to reach a consensus" before Congress acts on export controls for China, Weadon said.
Other observers believe Intel will face few export problems with its tool vendors since most are from Japan and Europe, where export rules are generally less stringent. Intel's primary lithography supplier, for example, is Japan's Nikon Corp.
Intel's fab move comes as spending on fabs trends downward in China. In 2004, SEMI predicted the country's market would be billions of dollars larger by now than it actually is. But many of the fabs announced that year never were built.
Total fab equipment spending in China is expected to grow from $1 billion in 2005 to $2.56 billion in 2008, according to SEMI. Spending for new 12-inch fab equipment will dominate in the coming years, with entry-level process technology at the 0.13-micron node.
Apart from SMIC, other foundries here do not appear not eager to ramp up 12-inch capacity. Hynix and ST, via their joint Wuxi project, are the only IDMs to have located an advanced facility in China thus far.
To date, Intel has invested more than $1 billion in China, with most of that going toward assembly and test operations in Shanghai and Chengdu.
But by the time Intel ramps up its fab in China in 2008 or 2009, the facility's process technology could be two generations behind the leading edge. Intel is currently ramping up 65-nm processors, with 45-nm designs in the works.
-- Additional reporting by George Leopold and Mark LaPedus.
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