Why Intel’s CEO was a guest at Biden’s State of the Union address
Jill Biden, the U.S. First Lady, and other first ladies applaud their guest Intel CEO Patrick “Pat” Gelsinger as they wait for President Joe Biden to mention Gelsinger’s name during the State of the Union speech at a joint session of Congress. This was in Washington on March 1, 2022.
Evelyn Hockstein | Reuters
Investors have not shown much appreciation for recent news. Intel, including its recent investor day. It wasn’t just that. IntelIt would say its server chip will be delayed by another year until 2024. However, it would invest heavily in capital foundry projects and forgo cash flow for the next three years, allowing revenues and profit margins shrink to grow.
Wall Street analysts, shareholders, and Wall Street investors find Intel’s recovery strategy risky and lengthy, given the vision of its new CEO Pat Gelsinger. Abhinav Davuluri, Morningstar analyst, stated in a report that Intel’s new domestic foundry will require years before it can produce chips suitable for sale to Apple and Qualcomm designers.
Intel and Gelsinger have one strong friend, President Joe Biden. Biden made a remark about Gelsinger during Tuesday night’s State of the Union Address.
You’ll see 1,000 acres of undeveloped land if you drive 20 miles east from Columbus, Ohio. Although it may not seem like much, if you look carefully, you will see the ‘Field of dreams’, where America’s future is built. Intel is building the $20 billion semiconductor “megasite” here.
Biden noted that Intel’s CEO, Pat Gelsinger, “told me they are ready to increase their investment from $20 billion to $100 billion. This would represent one of America’s largest investments in manufacturing history.
However, this is dependent on Congress passing the roughly $50 billion innovation bill. This act passed the Senate but not the House.
Intel’s drive to increase U.S. chips production has a positive side. It is not only aligned to government goals regarding competitiveness with China or national security. According to Gartner analyst Alan Priestley and vice president of Gartner, it will provide Intel with the necessary capacity to produce cutting-edge technology for future chips. This is more than Intel’s goal. The multi-billion-dollar plans to build four semiconductor fabrication plants — two in Chandler, Arizona and two just north of Columbus, Ohio — represent something bigger: the potential to be a boon for many U.S. businesses beyond solely the biggest.
This was one of Biden’s soundsbites at the Intel speech segment. He said it would be crucial for “technology that we have not invented yet”.
However, the investment by Intel is seen as a huge win for Ohio’s Rust Belt communities.
Tim Opsitnick is chairman of Council of Smaller Enterprises, Greater Cleveland Partnership. This chamber of commerce has about 12,000 members in Northeast Ohio. Opsitnick, his constituents, are situated about 100 miles northeast from the planned New Albany, Ohio Intel facility. But he expects the regional business opportunities to spread. Opsitnick said that companies have been asking, “How do we position ourselves to take advantage of these opportunities?” He stated. It is truly unprecedented.
Intel chose to locate near Columbus in Ohio. This is a city with a strong financial sector and white collar government. It will likely be the site of one of America’s largest new clusters for manufacturing jobs. The case is prime evidence of reshoring. Companies from multinational corporations have moved some of their production home from various locations across the globe. This is typically Asia or other countries where labor has historically been more affordable.
Since the Covid-19 pandemic, there has been a steady upswing in reshoring. This is due to U.S. regulatory and corporate tax cuts as well as concerns over rising overseas wages. The Covid-19 Pandemic caused import shortages and supply chains problems, which propelled reshoring at record levels by 2020. Harry Moser, the founder of Reshoring Initiative (a non-profit dedicated to bringing back American manufacturing jobs), said that it was these events.
Moser said that consumers, companies and government saw the consequences of peak-Covid personal protection equipment. Other industries saw it and also warned that this could occur to them.
Reshoring Initiative data shows that 230,000 more manufacturing jobs have been transferred to America in 2021 than 170,000 in 2020. The bulk of these jobs involve transportation equipment, where the size and weight of the products — components for cars, planes and boats — eat away at the total cost savings of overseas production. Today, reshoring is occurring at an increased rate in certain sectors, including computer/electronic goods and electrical equipment components. This includes solar panels, batteries, drones, and lithium-ion batteries.
According to announcements made by Intel, Samsung, Taiwan Semiconductor Manufacturing Company, the U.S. Semiconductor Industry jobs will increase over the next three-years. Priestley says that these plants will increase the supply chain for semiconductors by giving chipmakers the ability to create chips for the products they want in three- to four years. The fabs won’t make the U.S. self-sufficient in terms of total supply chain logistics — chips still need to be shipped around the world to be integrated into products — but adding capacity at home reduces Intel’s reliance on foreign partners.
Terry Esper is an associate professor of logistics in the Fisher College of Business, The Ohio State University. He stated that when an industry becomes so hampered by trade barriers, it’s time to rebalance. All industries have been involved in this larger discussion about network reconfiguration. It involves balancing where manufacturing takes place and where distribution occurs. This also aims to lower the risk.
According to Moser, roughly half of all jobs reshored are held by small companies in the supply chain. Reshoring is a benefit for small American companies in two ways. A multinational corporation may switch from overseas to domestic suppliers or an American company which initially assembled the final product abroad will move its processes to the U.S. and find local suppliers.
Small business proponents near New Albany, Ohio, hope that’s the case once Intel’s new semiconductor fab — its first new manufacturing site in 40 years — goes online in 2025. Intel claims the new site will provide 3,000 jobs for Intel and 7,000 jobs in construction over the course of the next three-years. The announcement also stated that it hopes to provide support for “tens and thousands” of long-term, local jobs through a diverse ecosystem of suppliers partners.
Local suppliers most impacted by a large semiconductor plant coming to town include a myriad of niche manufacturers— think plate work makers and nonferrous metal smelting and refining — and professional services like marketing, public relations and research and development.
Bill LaFayette is the owner of an economic consulting firm. RegionomicsTo identify business opportunities in local areas, he used the U.S. Bureau of Economic Analysis sector data to determine where Intel was investing. He compared Intel’s investment with when Honda first opened an auto plant in the area in the 1970s. He stated that the company has helped create many local suppliers of automotive parts throughout the region. They have had an enormous impact on our region’s manufacturing facilities over the past decades. Intel has the potential to create new business opportunities and expand existing ones.
The shortage of skilled manufacturing workers, which has been a problem for the sector since before the outbreak, is a major obstacle to all the new Ohio business. Jeannine Kunz is vice president at Tooling U-SME. She provides training in manufacturing. “Firms turn down orders because the don’t have enough people.”
According to Deloitte, the skills gap could lead to 2.1 million vacant jobs by 2030. This is particularly taxing for smaller businesses that compete against larger companies like Intel, who are able to afford higher wages. “It could be an offsetting impact if you’re trying to start a technology business — really any business,” LaFayette said.
Gelsinger isn’t certain Intel’s economic impact would be equal to his Silicon Heartland prediction. Penn State’s research has shown that areas with large non-local corporations have slower long-term economic development than regions that are bolstered locally by small-owned businesses. Stephan Goetz is a Penn State Professor of Regional Economics and Director of the Northeast Regional Center for Rural Development. He explains that big businesses tend to use in-house systems for accounting, legal supply, and maintenance. He said that Intel should be asking themselves if they are bringing in everything from outside. This would create a completely different impact. [on the region]A firm which sources local supplies is better than one that does not.”
To sustain a viable workforce, Intel said it’s investing about $100 million over the next 10 years in partnership with Ohio universities, colleges and the U.S. National Science Foundation to build semiconductor-specific curricula for associate and undergraduate degree programs. On a national level, in reshoring hotspots like Arizona, Ohio, Tennessee and Oklahoma, more state and local governments — and organizations like Tooling-U SME — are focusing on intercepting and training students at the high school level.
“The ecosystem that’s been developed is why Intel is here — the leadership in Ohio has never stopped making investments in manufacturing, infrastructure and training,” said Kimberly Gibson, the ecosystem director at America Makes, a membership organization in Youngstown, Ohio, for the additive manufacturing and 3-D printing industry. “Intel’s decision not to locate the Ohio facility will have a lasting impact on generations.