Reports: Intel planning chip plant in China

Numerous organizations, including The Wall Street Journal and the Financial Times, reported Tuesday that Intel and the Chinese government have signed an agreement that would see Intel build a $2.5 billion chipmaking plant in the northeast port city of Dalian, citing a posting on the Web site of China's National Development and Reform Commission. An Intel representative declined to comment, saying the company has made no such announcement. The posting could not be found on the English-language version of the site.

But an announcement might be coming within the next few weeks, as Intel gears up for its mid-April Intel Developer Forum in Beijing. If confirmed, the new plant would mark a milestone for Intel and the U.S. chip industry in China.

Intel currently runs assembly and test plants in the Pudong district of Shanghai and in Chengdu in southwest China, but as the name suggests, those facilities merely test and assemble the final packaging for processors made elsewhere. According to reports, the facility would produce 90-nanometer processors on 300-millimeter wafers, a technology generation removed from Intel's current 65-nanometer manufacturing technology.

Moving Intel's chipmaking technology into China is something that has been rumored for years. One obstacle has been the export controls put in place by several countries under the Wassenaar Arrangement, designed to keep China and other countries from acquiring advanced technology for military purposes. These controls have put limits on what equipment can be brought into the country from the U.S. and currently extend to lithography equipment capable of producing features smaller than 180 nanometers, according to a list of controlled equipment on a Web site for the Wassenaar Arrangement.

In practice, however, export licenses can be granted so long as companies aren't bringing their latest and greatest technology into the country. Export licenses are granted based on a combination of factors, including the export compliance record of the potential license holder, the stated end-use of that technology and the level of technology involved, according to SEMI, a semiconductor manufacturing trade association.

Still, as recently as 2004, Intel Chairman Craig Barrett was very pessimistic about building fabs in China. "If I wanted to build a 90nm, 300mm fab in China, the U.S. government would say, 'Absolutely not.' U.S. export controls and regulations do not help U.S. companies compete in China relative to our competition," Barrett reportedly said at an event in San Jose.

But it appears Intel is getting ready to do just that, though such a plant is not as state-of-the-art as it was in 2004.

By the time this potential plant could be operational, 90-nanometer manufacturing technology will be a full two generations behind Intel's most advanced 45-nanometer technology. Chipmakers tend to use older manufacturing technology to build chipsets and low-end processors, with the most advanced designs saved for the latest and greatest stuff.

For this reason, it seems illogical that Intel would choose to invest $2.5 billion for a fab that will be old news by the time it is built, said Risto Puhakka, an analyst with VLSI Research. He expressed surprise at the news but suggested that Intel could be trying to get a foothold in China if export restrictions are loosened down the road, if the reports are true.

China already has a home-grown foundry, Semiconductor Manufacturing International, which is building 90-nanometer chips for its customers. But it needed the help of an outsider--Qimonda, the memory maker formerly known as Infineon--to get its 90-nanometer technology into logic development.