IBM announces US$2.5-billion expansion of chip business

Taking its biggest step ever into the chip-making business, IBM Corp. on Tuesday announced that it will build a US$2.5 billion chip plant in East Fishkill, New York, part of a $5 billion worldwide investment in its semiconductor business.

Silicon Valley took the back burner to Hudson Valley – at least momentarily – with the semiconductor plant announcement.

“It will be the most advanced semiconductor facility in the world,” said Lou Gerstner, IBM chairman and CEO, during a news conference. “We are chasing supply today to deal with all the demand internally and externally. We only see this demand continuing to grow.”

The facility, which is expected to be operational by the second half of 2002, will focus on copper interconnects, silicon-on-insulator (SOI) and low-k dielectric insulation on 300 millimetre (12-inch) wafers, the company said in a statement. IBM also plans to be the first chipmaker to mass-produce semiconductors at line-widths below .10 microns, more than 1,000 times thinner than a human hair.

IBM said the new plant would bring about 1,000 jobs to East Fishkill and be fully operational by 2003. The $2.5 billion investment is the largest capital investment in the state of New York, the state’s governor said in a statement.

One analyst suggested the move represented the culmination of a long-term strategy by the company.

“For many years, the company has invested heavily in the research and development side,” said Drew Peck, a semiconductor analyst with SG Cowen in Boston. “The argument against IBM, though, has been that they were an expensive alternative to the Taiwan chip manufacturers. By going big (creating a large manufacturing facility), they are spreading the R & D costs.”

In addition to the New York facility, IBM said it would expand the chip-making capacity of its existing Burlington, Vt., and Yasu, Japan plants. It will also expand its Altis Semiconductor facility, which is a joint venture with German semiconductor maker Infineon Technologies AG, located in Corbeil-Essonnes, France. Organic and ceramic chip packaging operations also will be expanded.

In East Fishkill, IBM will build a 100,000 square foot (9,000 square meters) manufacturing facility with an adjacent 34,000 square foot (3,060 square metres) development centre. Construction already has commenced on the two structures.

Gerstner said at least part of the reason for locating the plant in the Hudson Valley was the access to skilled workers to fill the positions at the plant from the State University of New York (New York) campuses, Rensselaer Polytechnic Institute and other nearby academic institutions.

“It is a constant intellectual renewal at these plants,” he said.

Shares of IBM were down $4.06 a share to $113.87 a share in early afternoon trading Tuesday.

IBM, in Armonk, N.Y., can be reached at