Can we keep Intel from leaving?

The media relations officer of Intel Philippines told a reporter they don’t want to talk about it now. She also reiterated Intel “has made no decision on this matter and is currently exploring multiple options.” But they have met with their employees in an effort to update them “that significant investments would be required to ensure the long-term viability of its factory building in Cavite.”

But the signal is being given that Intel is seriously considering pulling out of the Philippines and the possibility is causing some amount of jitters among Ate Glue’s investment promotions people… and for good reasons. Intel has sunk over $1.5 billion in investments in the Philippines, and employs 5,000 direct workers and around 36,000 in indirect labor (e.g. janitors, security personnel, suppliers, etc.). An Intel pullout could result in a domino effect of existing investors opting out. And amidst a lot of worried breast beating at the Board of Investments, the question is asked: what went wrong?

The most common conjecture puts the blame on our high power rates. But is it? If the problem is high power cost, why Intel Philippines, not Intel Penang? Intel Penang reportedly has higher power cost, same incentives as the Philippines, higher labor cost… As one industry leader observed, “power is only about 30 percent to 40 percent of the costs, depending on the company, so I doubt if it was for this reason alone.”

Could it be because our Science and Technology environment remains poor? High tech companies like Intel need more than fiscal incentives. They need a good S and T environment to support their human resources needs as well as continuing research and development (R&D). Our science and technology environment and educational system cannot support the technical brainpower requirements of a high tech company like Intel.

Our educational system has resource gaps that have led to low levels of Science and Technology graduates. I am told that for every one master’s degree graduate we produce, Vietnam produces six, Thailand 25, and Singapore 200. Out of our 430,102 college graduates last year, engineers and technology-related graduates constituted 13 percent, IT 9.5 percent, business 21.5 percent, medicine and nursing 19 percent. I am afraid to ask the percentage accounted for by those who took up law.

That’s an advantage Intel Penang has over Intel Philippines. They supposedly have talents in Penang to grow their operations. I am told Intel Penang is considered one of the best Intel R&D centers around the world. If we want to keep companies like Intel to stay, both the government and the private sector will have to act. Our academe, for starters, must upgrade their system and curriculum and government must perhaps, give them incentives to do that instead of producing more lawyers.

But that’s not all. According to Dennis Posadas, author of the book RICE & CHIPS: Technopreneurship and Innovation in Asia, other reasons could be pilferage, tax issues among others. “The Pentium chips they are manufacturing here are so valuable Intel monitors closely their own employees lest the chips disappear somewhere in the process of fabrication, packaging and testing.” I heard that Intel Philippines had some serious pilferage problems in the past.

But fears about the quality of our governance appears to be the more important explanation why Intel is having second thoughts about making the fairly large investment necessary to continue its manufacturing operations here. That’s not unusual. Shell has also been having a difficult time making the decision to invest over a billion dollars needed to upgrade its refinery in Batangas. The hesitation in Shell’s case has to do with the predictability of our laws. Despite our being a nation of lawyers (or maybe because of it), enforcement of our laws is whimsical. I can guess Intel has enough experience with that to think twice about staying.

What is happening to Hanjin in Subic is going to be closely watched. Here is a major investor who is bringing in billions of dollars in investments and creating hundreds if not thousands of jobs and it is being demonized. Okay, they probably shouldn’t have built their condos where they did but they got all the proper permits and we gave them the site. A foreign investor who follows what local regulators say should be given a free pass. If the Subic officials made a mistake, that’s our problem and not Hanjin’s.

As it happens, Intel’s 18-year old facility at a 20-hectare site inside the Gateway Business Park in General Trias, Cavite can produce only “old generation” Pentium processors — an enterprise that will potentially be overtaken by operations at Intel’s plant in Vietnam. Vincent Chua forwarded to me a copy of an e-mail message he received from Dr. Gregory Tangonan which explains the technical background of Intel’s crossroads moment. Dr. Tangonan is President, Asia Pacific Technical Strategies and Professor, Ateneo de Manila University,

According to Dr. Tangonan, the fabrication process practiced worldwide has recently been displaced by a brand new process. In the search for greater performance, (in accordance with Moore’s Law, which states that the number of transistors that can be made inexpensively on a chip doubles every two years) Intel announced recently it has developed a process based on exotic materials like Hafnium metal and specialty oxides of heavy metals.

“This is the first major revamp of the circuit design in roughly 40 years. The next generation of Pentium chips and for that matter the next generation of most circuits will use this process, because Intel and IBM are busy making licensing deals for their new processes. Any new investment in chip fabrication facilities anywhere in the world will be based on this new technology.”

Dr. Tangonan explains “the new Hafnium process is a winner, and Intel is going to be the first to bring this new process to market in the form of high performance Pentium chips.” Unfortunately, the Philippines comes out the loser because we seem unable to convince Intel to make the investment to bring the new process here.

Dr. Tangonan then asks a number of questions that should spark thoughtful discussions from government and industry leaders because our concerns should really go beyond Intel’s decision to stay or go.

“Can we find some investors or buyers willing to upgrade our ‘old’ facilities to the new Hafnium standard? Why were the Intel Philippines managers unable to make a technically convincing case to Intel America to bring the Hafnium process to the Philippines?

“How long can we sustain our present levels of exports if the very processes we practice today will become passé in the near future? Are we going to be content with testing and packaging making up the majority of our exports, as chip fabrication moves elsewhere? How do we focus our research and innovation in the electronics industry to make our Industry future proof?”

The big concern with the pullout of a company like Intel is the likelihood that it will send a signal to other high tech companies that they also don’t have a future here. If we can get our act together to keep Intel from leaving, attracting other high tech companies to come or to stay should be easier. Unfortunately, we have such a large backlog in infrastructure and manpower training to address and the predictability of how we implement our laws is so questionable that it is difficult to be optimistic.

But we don’t have a choice. We have to get our programs going now so that even if we lose Intel in the next few months, we would be ready to catch the next wave of investments in high technology and other industries. If Vietnam can do it in spite of having suffered decades of war, why should we be eating their dust?

Hair smells terrific

Dr. Ricky Soler forwarded this one.

Every day, a male co-worker walks up very close to a lady at the coffee machine, inhales a big breath of air, and tells her that her hair smells nice. After a week of this, she can’t stand it anymore, takes her complaint to a supervisor in the personnel department and asks to file a sexual harassment grievance against him.

The Human Resources supervisor is puzzled and asks: “What’s sexually threatening about a co-worker telling you your hair smells nice?”

The woman replied, “It’s Keith. The midget.”

Boo Chanco’s e-mail address is [email protected]