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Idle Intel fabs foretell PC decline

Andy Patrizio | April 15, 2013
Were Intel's fabs the canary in the tech coal mine?

The exterior of Fab 32 on the Intel Ocotillo campus, Chandler, AZ
Image credit: Intel 

After its engineers, Intel's most important asset is its fabrication facilities ("fabs"). Fabs cost billions to build, populate, operate and maintain, and just as an airplane isn't making the airline any money when it sits on the tarmac, a fab isn't making money when it's idle. It's costing the owner money, and lots of it.

But idle they are. Intel's fabs may be at their lowest rates of utilization ever seen, according to Jim McGregor, president of Tirias Research, a semiconductor analyst based in Phoenix, Arizona, and in retrospect, it could be they were the early warning that the PC industry was in deep trouble - something that only now is coming out with the disastrous PC sales figures from Gartner and IDC.

While it was known that the PC industry has been twisting in the wind with poor sales through Christmas, this week we got the solid figures. IDC put worldwide PC sales for Q1 2013 down 14% from Q1 2012, while Gartner said sales were down 11.2% year-over-year.

To understand how Intel may have known this was coming, you must set your wayback machine to 2001, when the Tech Bubble burst and the industry was left sitting on billions of useless inventory that had to be sold off cheap or written off as a loss.

Vowing never to let that happen again, Intel formalized what had been a more casual look into the supply chain, requiring the entire supply chain report on what they were hearing in the market rather than trading on gossip and hearsay. It also changed how client purchase plans were handled, which forced more customer financial commitment as well. If there was a problem at some point, such as OEMs not buying product because sales were trailing off, Intel would know before orders started backing up the supply chain.

When the economy took a massive downturn in late 2008, Intel was ready. It was able to halt production almost overnight and did not get stuck with a huge amount of inventory. Other chip companies followed Intel's lead, figuring Intel knew something they didn't. The early warning failsafe ended up working out very well and vendors didn't get saddled with inventory.

History repeats

The hints of trouble were there, if you were in Arizona. Intel's four fabrication plants in the Arizona area are all reportedly running below capacity, with one not even operational. Fab 12, which makes processors, has been below capacity; Fab 22, which makes chipsets, is also running below capacity, as is Fab 32. Fab 42, the newest, isn't even running.


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