In a recent interview with CNBC, Brian Krzanich, CEO of microprocessor giant Intel (INTC +4.67%), highlighted the fact that between 60% and 75% of the company's chips are manufactured in the United States and that the company exports 75% of its products.
Image source: Intel.
"We're the second largest exporter in the United States, so we consider ourselves kind of the role model manufacturer," Krzanich said.
The interviewer then asked Krzanich the following question: "What do you want to see policy-wise that's going to help Intel to do more exporting to the rest of the world?"
Krzanich responded with the following: "The real answer is not a trade war, is not restrictions; it's really about making the U.S. more competitive -- lowering the tax rates, making it easier for people to do manufacturing here, all of that discussion. That's what will bring manufacturing back to the U.S. and/or make it stronger in the U.S."
With all of that in mind, it's important to recognize that there's not a lot that the new administration can do to help Intel increase the number of manufacturing jobs that it creates because of one simple fact: Intel isn't seeing enough demand to justify new factories in the U.S., or elsewhere.
Remember Fab 42?
Chip manufacturing companies put in chip manufacturing capacity commensurate with where they believe demand will be over the next couple of years. If the company thinks demand will grow significantly, then it will start putting in capacity to support that growth.
If the company expects demand for their chips to be flat to down, then it's not going to invest in building out additional capacity, since it would be expected to sit idle, hurting the company's financial results.
Indeed, that's exactly what happened with Intel's Fab 42. In 2011, Intel announced that it would be building "a new $5 billion-plus factory in Arizona."
The plant was supposed to be "the most advanced, high-volume semiconductor manufacturing facility in the world," says the company, and that it would create "thousands of construction and permanent manufacturing jobs at Intel's Arizona site."
Three years later, Intel announced that it wouldn't be completing the factory. The reasoning behind this decision was obvious: The demand that Intel expected to enjoy when it first started to manufacture the plant back in 2011 simply didn't materialize.
What this meant is that although the manufacturing plant itself was "built," Intel did not fit it with the expensive chip manufacturing equipment required to produce chips. The good news is that this means Intel doesn't have to deal with the high depreciation costs associated with a fully equipped-but-idle manufacturing plant, but the bad news is that all of those "permanent manufacturing jobs" simply never happened.
So, how can Intel bring more manufacturing jobs to the U.S.?
The truth is that if Intel wants to create more manufacturing jobs in the United States, it's going to need to sell a lot more chips than it does now.
I don't see Intel needing to equip an all-new factory with its core microprocessor businesses (PC, server, Internet of Things). Significant volume growth for Intel is going to need to come from sales of non-volatile memory products, and to that end, Intel recently converted its logic factory in Dalian, China, into a NAND and 3D XPoint memory factory. Or it will have to come from large orders to build chips for others.
Perhaps one day Intel will have good reason to equip Fab 42 with expensive chip manufacturing equipment and create many permanent manufacturing jobs, but the prospects of seeing that happen in the near term aren't good.
