Tuesday, March 07, 2006
Intel Inside Vietnam
Why Intel's Stacking the Chips in Vietnam
Chairman Craig Barrett talks about his reasons for investing $300 million in the country -- and why other suppliers are likely to follow
On Feb. 28, Intel Chairman Craig Barrett was in Ho Chi Minh City to announce a $300 million investment to build a chip testing and assembly plant in Vietnam. Barrett spoke to BusinessWeek Asia Correspondent Frederik Balfour about the challenges of being a semiconductor pioneer in Vietnam, a country with PC penetration of just 4%.
Why did you decide to invest in Vietnam when Intel (INTC) already has test and assembly facilities in Shanghai, Chengdu, Malaysia, and the Philippines? Couldn't you have easily expanded your capacity in these markets?
There is no question the capacity demand is there [outside of Vietnam], and if you look at our long-term roadmap, you will see more factories.
You might read into it that there are other opportunities to solidify a position here in Vietnam, obviously by expanding our capability and activities. If you look at Vietnam, with a population of 83 or 84 million, a growing economy, and low cost -- all of those add up as reasons to invest here.
Are you experiencing cost pressures in China?
In Pudong [Shanghai], obviously there's some cost pressure which would be associated with just about any economy as it grows. If you look at the Philippines and Malaysia today, compared to 10 or 20 years ago, there has been growth in the standard of living, and that carries with it a certain amount of cost pressure.
But is Vietnam more competitive than China?
You have to trust that our guys always have cost in the back of their minds when they make these decisions. They look for opportunities for the best deal for Intel. So yes, cost is always a driving factor.
PC penetration in Vietnam is still quite low, less than 2%, according to some estimates. That works out to about just 1.6 million PCs.
I would estimate 4%. But it's still low.
In other countries, haven't you followed the original equipment manufacturers (OEMs) rather than led them? Is this a new strategy? There are no multinationals assembling PCs here, and there's a very fragmented local PC assembly business in Vietnam.
I would actually mildly challenge your contention about following the OEMs into country markets. Our business model is always a combination of dealing with large multinationals and local and smaller OEMs and small system integrators. There are 160,000 to 180,000 of them worldwide, and they constitute a large part of our distribution channel and getting our product into the marketplace. They are quite distinct from the Dells (DELL), Lenovos (LNVGF), and H-Ps (Hewlett-Packard, HPQ).
Which suppliers are likely to follow you to Vietnam?
You always have folks to service and support the manufacturing equipment whether they're testers or assembly test equipment makers, as well as suppliers of raw materials. So there's a food chain that would naturally follow our activities into any new area. Everybody from guys who do bonders to injection molding to printed circuit boards
As for other large suppliers following us, for some reason there tends to be a herd instinct. One of us goes into a new environment, and quite often there's a critical mass that follows behind. Whether that's going to be Texas Instruments (TI), Freescale (FSL), or whoever it might be, once someone comes in and paves the way, it's usually easier for a second or third party to come in.
Since there are virtually no test and assembly engineers in Vietnam, how will you train them?
We will have hundreds of people who will be temporarily relocated to other Intel sites for training. This is routine in every establishment -- whether it's Pudong or Chengdu or when we created the Irish wafer fab.
What about the supply of IT graduates in Vietnam?
From what I've seen from the growth of the university IT sector, there will be an adequate supply. But as you point out, none of those people are going to come out with specific product engineering expertise.
How do you plan to expand the digital agenda in Vietnam, and how does this fit in with Intel's strategy of moving beyond microprocessors and parts inside the box?
There are four aspects of that. One is hardware or our standard business. And it's especially important for emerging economies to have affordable hardware. The three other pieces are connectivity, content such as Internet use, and teacher training. So unless you take a holistic view, you're kind of playing with half a deck.
How far along is Vietnam in developing WiMax, the standards-based wireless technology?
I think the government has allocated spectrum for mobile and fixed, and have or are about to license three companies for commercial implementation. So it's moving ahead.
What impact will Vietnam's expected admission to the World Trade Organization have on your business here?
There are a couple of advantages. One is the minimization of tariffs and barriers to free trade. The other is intellectual-property protection. All are of great interest to us.
How has Vietnam changed since your first visit in 1998?
Economic growth obviously has been strong since then. The growth of the educational environment, the absolute number of students and the capability and growth of IT into the educational sector, and the IT sector at the university level has also grown.
Just look out the window -- you see buildings knocked down, new ones coming up, and lots of high-rise construction cranes.
The next step I'm waiting for is when cars replace motorbikes. Then, every city in Vietnam will look like every major city elsewhere in the world, which means traffic will be at a standstill. That's a sign of economic progress these days.
Chairman Craig Barrett talks about his reasons for investing $300 million in the country -- and why other suppliers are likely to follow
On Feb. 28, Intel Chairman Craig Barrett was in Ho Chi Minh City to announce a $300 million investment to build a chip testing and assembly plant in Vietnam. Barrett spoke to BusinessWeek Asia Correspondent Frederik Balfour about the challenges of being a semiconductor pioneer in Vietnam, a country with PC penetration of just 4%.
Why did you decide to invest in Vietnam when Intel (INTC) already has test and assembly facilities in Shanghai, Chengdu, Malaysia, and the Philippines? Couldn't you have easily expanded your capacity in these markets?
There is no question the capacity demand is there [outside of Vietnam], and if you look at our long-term roadmap, you will see more factories.
You might read into it that there are other opportunities to solidify a position here in Vietnam, obviously by expanding our capability and activities. If you look at Vietnam, with a population of 83 or 84 million, a growing economy, and low cost -- all of those add up as reasons to invest here.
Are you experiencing cost pressures in China?
In Pudong [Shanghai], obviously there's some cost pressure which would be associated with just about any economy as it grows. If you look at the Philippines and Malaysia today, compared to 10 or 20 years ago, there has been growth in the standard of living, and that carries with it a certain amount of cost pressure.
But is Vietnam more competitive than China?
You have to trust that our guys always have cost in the back of their minds when they make these decisions. They look for opportunities for the best deal for Intel. So yes, cost is always a driving factor.
PC penetration in Vietnam is still quite low, less than 2%, according to some estimates. That works out to about just 1.6 million PCs.
I would estimate 4%. But it's still low.
In other countries, haven't you followed the original equipment manufacturers (OEMs) rather than led them? Is this a new strategy? There are no multinationals assembling PCs here, and there's a very fragmented local PC assembly business in Vietnam.
I would actually mildly challenge your contention about following the OEMs into country markets. Our business model is always a combination of dealing with large multinationals and local and smaller OEMs and small system integrators. There are 160,000 to 180,000 of them worldwide, and they constitute a large part of our distribution channel and getting our product into the marketplace. They are quite distinct from the Dells (DELL), Lenovos (LNVGF), and H-Ps (Hewlett-Packard, HPQ).
Which suppliers are likely to follow you to Vietnam?
You always have folks to service and support the manufacturing equipment whether they're testers or assembly test equipment makers, as well as suppliers of raw materials. So there's a food chain that would naturally follow our activities into any new area. Everybody from guys who do bonders to injection molding to printed circuit boards
As for other large suppliers following us, for some reason there tends to be a herd instinct. One of us goes into a new environment, and quite often there's a critical mass that follows behind. Whether that's going to be Texas Instruments (TI), Freescale (FSL), or whoever it might be, once someone comes in and paves the way, it's usually easier for a second or third party to come in.
Since there are virtually no test and assembly engineers in Vietnam, how will you train them?
We will have hundreds of people who will be temporarily relocated to other Intel sites for training. This is routine in every establishment -- whether it's Pudong or Chengdu or when we created the Irish wafer fab.
What about the supply of IT graduates in Vietnam?
From what I've seen from the growth of the university IT sector, there will be an adequate supply. But as you point out, none of those people are going to come out with specific product engineering expertise.
How do you plan to expand the digital agenda in Vietnam, and how does this fit in with Intel's strategy of moving beyond microprocessors and parts inside the box?
There are four aspects of that. One is hardware or our standard business. And it's especially important for emerging economies to have affordable hardware. The three other pieces are connectivity, content such as Internet use, and teacher training. So unless you take a holistic view, you're kind of playing with half a deck.
How far along is Vietnam in developing WiMax, the standards-based wireless technology?
I think the government has allocated spectrum for mobile and fixed, and have or are about to license three companies for commercial implementation. So it's moving ahead.
What impact will Vietnam's expected admission to the World Trade Organization have on your business here?
There are a couple of advantages. One is the minimization of tariffs and barriers to free trade. The other is intellectual-property protection. All are of great interest to us.
How has Vietnam changed since your first visit in 1998?
Economic growth obviously has been strong since then. The growth of the educational environment, the absolute number of students and the capability and growth of IT into the educational sector, and the IT sector at the university level has also grown.
Just look out the window -- you see buildings knocked down, new ones coming up, and lots of high-rise construction cranes.
The next step I'm waiting for is when cars replace motorbikes. Then, every city in Vietnam will look like every major city elsewhere in the world, which means traffic will be at a standstill. That's a sign of economic progress these days.
# posted by J.C. : 10:13 AM
