Investors Shouldn't Worry About Intel's Fab 42 Factory

Intel won't open its Fab 42 factory anytime soon, but here's why investors shouldn't worry about it.

Jan 15, 2014 at 2:00PM

When you're the world's largest PC chip maker, the last thing people would expect you to do is stop work on building one of the most high-tech chip manufacturing facilities in the world. But that's exactly what Intel (NASDAQ:INTC) just did.

Fab 42 during construction in 2012. Source: Intel

The company's move to stop work on the finished but nonoperational Fab 42 facility is the temporary end of a $5 billion investment set into motion in 2011. The factory was going to be "the most advanced, high-volume semiconductor manufacturing facility in the world" according to Intel. While it's a bit disconcerting to see a brand-new building just sit there, Intel investors should see it as a cautious move by the company, rather than a step backward.

Waiting on the future
Intel told Reuters it won't open Fab 42 right now because of "capital utilization," a move likely induced by the slowdown in PC shipments in 2013. Both IDC and Gartner found that PC shipments fell 10% from 2012 to 2013, with Gartner saying the the drop was " the worst decline in PC market history." Next year PC shipments are expected to decline as well, although not as sharply and could even start bouncing back a bit.

With Intel's core business being PC chips, its not really a surprise the company postponed opening the fabrication factory. The company is taking a wait-and-see approach to PC demand before it ramps up production at the high-tech facility.

Planned expansion and new buildings always feel like the company is growing and doing well, so letting a brand-new building just sit there and not do what it was intended to do is disappointing. But Intel is upgrading other facilities so it can manufacture 14 nanometer chips.

Not opening Fab 42 is a cautious move by the company that allows it to still build the chips it needs to, while gauging future demand. Intel says it will use the building for future technologies, and I think that's exactly what it will do. Instead of spending money it doesn't need to, it can use Fab 42 for something it really needs later. Of course, it's not great that Intel started construction in the first place, but investors shouldn't look too much into the building sitting for a little longer.

Intel will report its latest quarterly numbers tomorrow and the company has already projected earnings to be flat. Not opening Fab 42 won't change any of that now. What investors should instead keep an eye on is how the company continues to pivot away from PC chips and into the mobile and wearable markets. Intel talked a lot about wearables at the recent Consumer Electronics Show, but the company is far behind competitors like Qualcomm, Samsung, and NVIDIA in the mobile space. Fab 42 could reemerge in a year or two as a key manufacturing facility for new chips in these competitive spaces, but for now it's not beneficial for investors to read too much into it.

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