Intel's $7-Billion Stimulus PackageIntel's $7-Billion Stimulus Package

Thank God for Intel. That's all I can say; in the wake of a sagging economy and continued weak chip demand, the semiconductor behemoth is doubling down on the future of the PC industry by pledging to spend $7 billion over the next two years. The money goes to upgrade a bunch of existing chip fabs to Intel's next-gen 32-nm fabrication technology, and will keep some 7,000 people employed.For those who wonder whether there are any healthy companies out there, get this: Intel is not borrowing money to finance the upgrades. It's paying for it all out of internal cash. "You never save your way out of recession. You invest your way," Intel spokesman Chuck Mulloy told Reuters.

That's true in the sense that the semiconductor industry has to move forward, or die. However, forward progress in the chip arena is unbelievably -- unaffordably, for most -- expensive. Chip fabs cost between $1 billion and $2 billion to build. Intel is currently at 45-nm, and is investing the money to move some of its plants (those producing the most cutting-edge parts) to 32-nm.

The "nm" stands for nanometers, which refers to the feature sizes on the integrated circuits themselves. The smaller the feature size, the most gates or transistors you can fit on a given slice of silicon. Thus, each new generation can pack more functions onto a microprocessor -- a Moore's Law progression we've seen as we've moved from 386 to 486 to Pentium and now to the Core i7 family.

More important, smaller features also allow chip designers to cut voltages and thus reduce overall power dissipation, or wattage. (This isn't as simple here as I'm making it sound -- for example, the industry had to go from single- to multicore as an additional trick to rein in power dissipation -- but the rough idea is correct.)

There are two interesting dynamics when one thinks about Intel's plans to further invest in physical plant. The first is financial. Over the years, I've been impressed with the way Intel manages the massive capital flows involved in funding the construction and operation of chip fabs. If you've ever heard presentations from Andy Bryant, formerly Intel's chief financial officer and now its chief administration officer, you know it has engineered its cash flow as expertly as it does its chips.

Intel has a waterfall model where a few cutting-edge plants crank out the fanciest (and most profitable) processors. When plants age and become not quite so state-of-the-art, they move over to cranking out mainstream product, and so on down the chain. It's a factory flow model Henry Ford would've been proud of.

The second interesting dynamic is where we're headed technically. Right now, there are two simultaneous threads. One is at the high end, where currently we see 45-nm quad-core parts and soon we'll see 32-nm microprocessors with four, six, and eight cores. These chips are the engines for an ever more powerful and productive array of servers.

However, we also see an unusual amount of activity on the low end, in netbooks. This is a new dynamic, and represents in a way the arrival of a long sought-after Holy Grail in commodity parts. Not quite as much profit in these chips, but as long as they don't cannibalize the high end too much, the industry will take it. And the fact that netbooks will drive further build-out of Wi-Fi and WiMax networks, and will secondarily stoke demand for back-end servers, can't be a bad thing.

What chip's in your PC? Leave a comment below or e-mail me directly at [email protected].

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Alex Wolfe is editor-in-chief of information.com.