Global Economics

Intel Prepares to Close Philippine Plant


The U.S. chipmaker says plans to close the factory south of Manila are among the options it's exploring, but employees expect the worst

Top company officials informed local employees during a meeting Apr. 2 that the company was exploring "multiple options" for the manufacturing hub, one of which included plans to close the facility. They added that severance pay packages have already been arranged for the employees, should these plans fail to work out in the next six to nine months.

First set up in Makati City in 1974, the manufacturing plant was later moved to a bigger facility in General Trias, an industrial town where the biggest industry is semiconductor, in the province of Cavite, located just south of Manila.

In 2002, six years after the move, the Makati location was closed and Intel consolidated all its manufacturing functions including Flash memory design, to the Cavite facility, which currently employs about 3,000 employees.

Rumors have been circulating 2005 that Intel had already made a decision to pack up and leave the Philippines after the year 2010. The writing on the wall became clearer in 2006 when Intel inaugurated a US$605-million test and assembly plant in Ho Chin Minh City in Vietnam.

During the Vietnam launch, Intel Chairman Craig Barrett said the facility was simply an expansion and would not affect the operations of other plants located in countries such as the Philippines.

However, the telltale signs were obvious. Among the countries in Asia where it has test and assembly plants, the Philippines was the only site in which Intel made no significant plans to invest or expand.

Compared to the Cavite plant which received no part of Intel's US$1 billion investment plan for Asia in 2006, Intel poured a whopping US$270 million to increase the capacity of its Malaysian plants and another US$300 million to expand its facilities in Shanghai and Chengdu in China.

During the media interview, Barrett said the company considers "political stability" as a major factor when making investment decisions and singled out Vietnam as a favorable investment climate.

Intel was the first American semiconductor company to set up shop in the Philippines in 1974, and to date, the company has poured some US$1.5 billion worth on investment in the country. Intel chose the Philippines as the base of its second Asian offshore assembly operations center, after Malaysia.

According to Intel's local Web site, the Cavite assembly and testing facility provides "integrated circuits known as Flash memory, as well as microprocessors and chipsets that are marketed worldwide".

Impending move stuns employees

According to blog entries posted by current and former Intel employees here, staff present at the Apr. 2 meeting left in tears.

A brief statement from the company stated: "In an effort to keep employees informed, Intel has updated its employees that significant investments would be required to ensure the long-term viability of its factory building in Cavite." It did not explicitly disclose plans to shut down the manufacturing site.

However, an Intel representative said in a phone interview that offering exit package was the right thing to do since closing the plant is one of the options the company is exploring.

"We can't blame the employees if they feel [the offer of severance packages meant] that they're about to lose their jobs," said Teresa Pacis, external communications manager of Intel Technology Philippines, the manufacturing arm of Intel's local subsidiary.

"The company was just being honest with the workers when it announced the compensation package as Intel explores its options," Pacis told ZDNet Asia.

According to various blogs, Intel had discussed the possibility of moving the factory to an IT park in the neighboring province of Laguna because the current Cavite building is structurally unsound.

But employees dismissed this option, questioning the need to offer staff severance packages if the company had intended only to transfer to another location within the country.

Industry observers have cited high electricity and labor costs as two major reasons why Intel is planning an exit strategy. The Philippines has the second most expensive energy cost in Asia after Japan.

Intel's impending pullout is a huge blow to the Philippines, where the electronics market—which encompasses semiconductors—is the country's largest export earner.

The chipmaker's decision to put up a manufacturing hub was a symbolic vote of confidence that paved the way for other foreign companies such as Texas Instruments, to locate their operations in the country.

In fact, the current Cavite plant was where Intel's mobile processor Centrino was first assembled and shipped to the global market. Pentium 4 chips were also manufactured in the facility.

Aside from making chipsets and processors, the local site also houses a Flash memory design factory. However, employees who specialize in Flash are expected to move to Numonyx, a joint venture set up between Intel and STMicroelectronics.

In 2004, an Intel-commissioned study by University of Asia and the Pacific showed that the chipmaker's investments resulted in US$713 million in direct and indirect export contributions.

The report further noted that Intel accounted for 22 percent of exports in Cavite and was the largest employer in General Trias.

Provided by ZDNet Asia—Where Technology Means Business

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