Intel's big China news

Bruce Einhorn

The company hasn’t confirmed the news yet, but it seems Intel is gearing up to build its first chip fab in China. As my BusinessWeek colleague Arik Hesseldahl reports,the government’s National Development and Reform Commission has given Intel the green light to spend $2.5 billion on a plant making chipsets in the northeastern city of Dalian. For years, the Chinese have been wooing Intel, trying to get the Americans to commit to manufacturing microprocessors in China. Until now, Intel has kept its Chinese manufacturing relatively low end, focusing on flash memory as well as chip packaging. One reason that Intel has been reluctant to make a bigger commitment to China probably has been China’s notoriously weak protection of intellectual property rights.

So what’s changed? Hard as it might be for many Americans to believe, China actually is getting better on its protection of IPR. The percentage of counterfeit software, for instance, has dropped into the 80s, according to industry lobbying group the Business Software Alliance. The figure used to be closer to 95%. Still bad, of course, but maybe the progress gives Intel execs confidence that they can afford to do more advanced work in China.

Intel probably also realizes that it needs to lift its game in China, where it is engaged in an ever-more heated battle with longtime rival AMD. Intel has long dominated the Chinese PC market – which is the world’s second largest behind only the U.S. But AMD has been coming on strong, having formed partnerships with Lenovo and all of the other top Chinese PC vendors. And AMD has offered to transfer some of its microprocessor know-how to the government, whose engineers at the Chinese Academy of Science are working on designing a locally-made microprocessor. AMD has also opened an R&D center in Shanghai and has added hundreds of employees. Intel has a big R&D center in Shanghai, too, as well as research lab in Beijing. With the Chinese PC market growing fast – about 20% last year – at a time when growth in the U.S. is sluggish, Intel’s apparent decision to pour several billion into a chip fab shows that the company is fighting hard to keep AMD from gaining even more ground.