March 27, 2007 12:56 am

Intel’s China plant will test policy

Intel is likely to use the most advanced technology permitted by the US government at its planned new $2.5bn chip fabrication plant in China, with production of even its flagship personal computer “central processing units” possible, if Washington approves.

Paul Otellini, chief executive of the world’s biggest semiconductor company, said on Monday that while the plant in the north-eastern Chinese city of Dalian would initially produce less technically advanced chipsets, its future “opportunity to do other products” is “wide open”.

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“We would likely look to put into production the most advanced technology under the licensing policy of the US government at the time,” Mr Otellini said.

His remarks highlighted the dual challenge posed by Intel’s new plant to US technology policymakers.

On one level the plan is a test of Washington’s willingness to license advanced and strategic technology for manufacture in a country that many in the US see as an economic and potentially a military competitor.

The decision to build the fab in Dalian – far from any existing Intel chipmaking facility – will also to add to the pressure on US authorities to match the support given to semiconductor investment by other nations.

While Intel and Dalian officials declined to give details of the incentives offered for the planned fab, Chinese authorities routinely grant semiconductor manufacturers extended tax holidays, land at nominal prices and access to cheap credit.

Mr Otellini said he expected the Dalian fab to be Intel’s most cost-effective, but acknowledged that this would not be because of China’s low labour costs, which are a relatively minor part of a chip fabrication plant’s total expenditure.

Paying for capital equipment was the biggest burden for a fab, he said, adding that this was where “the level of support we are getting in China” came in.

Intel has argued that it costs $1bn more to build, equip, and operate a chip fab in the US than in countries with more generous tax and other incentive policies.

The Dalian fab will begin production in 2010, starting with chipsets with details as fine as 90 nanometres across.

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