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Intel to keep spending despite slump

Executives reaffirm ambitious capital-expenditure and research plans during the chipmaker's annual shareholders meeting.

Tech Industry
Intel still plans to spend its way out of the current economic slump, with executives reaffirming ambitious capital-expenditure and research plans during the chipmaker's annual shareholders meeting Thursday.

Analysts had widely expected the company to trim capital and research budgets as sales dropped during one of the worst slumps in the history of the semiconductor business. Despite a variety of cost-cutting measures--ranging from job cuts and unpaid leaves to delayed raises--those budgets will stay intact, CEO Craig Barrett said during the meeting.

"We firmly understand we're in a slowdown, but we also understand the only way out of a slowdown is with new products and new technology," Barrett told shareholders. "We think this is the only way to be successful on a long-term basis."

The chipmaker will spend $7.5 billion on capital expenditures this year, mostly to convert factories to operate on the more efficient 0.13-micron manufacturing process, which allows smaller circuits to be printed onto chips. Plans call for four factories to be making 0.13-micron chips by the end of this year. Intel is also changing equipment to make chips out of larger 300-millimeter wafers, a change that will go into full swing next year.

Barrett and Chairman Andy Grove both confirmed that it has been a rough year for Intel. In the most recent quarter, net income was down 64 percent from a year earlier, and revenue was down about 16 percent.

"We still expect the second half of this year will bring some relief," Barrett said.

Grove attributed the chip slowdown to a global slump in Internet-infrastructure investment that mirrors the up-down cycles of previous industrial upheavals such as the growth of the railroad business.

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"This is a pretty sad story in its aggregate," Grove said. "It's not a sad story in a cyclical fashion. It's something that happens every time a societywide infrastructure is employed."

The meeting also marked the retirement of Intel co-founder Gordon Moore from the company's board. Moore, who will continue to contribute to the company as chairman emeritus, is best known for formulating Moore's law, which states that a chip's data density will double approximately every 18 months

Grove noted that Moore had formulated several other valuable maxims, including some reassurances offered to investors and employees during an even more precipitous chip slump in 1981--one of which was: "It will get better."

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