Intel Ireland Should Fear the Reaper

The European Union imposed a fine of $1.45 billion (E1.06n), on chip maker Intel in May, for allegedly breaking anti-trust laws. It seems that the EU did not like Intel's pricing models which, they say, were designed to drive rival chip-maker AMD out of the market. The fine brings to mind the saying that one should be aware of where the tiger's teeth are before deciding to kick it in the balls.

Intel is a vast world employer with manufacturing plants on many continents including Europe. These plants require near constant investment to keep up-to-date with the needs of the fast evolving chip industry. When a new design comes from Intel's engineers, plants are invited to bid on manufacturing them, assuming they have the capacity, the technological expertise and the equipment to do so. A favorable exchange rate for the shipping of the final product (into US dollars) is also a key consideration.

Ireland is a country heavily dependent upon Intel for employment. To say that the closing of the Leixlip plant - where the workforce has already been trimmed this year - would be catastrophic would be an understatement. Those nearly 5,000 jobs would be impossible to replace. The Leixlip plant is currently lagging where new investment is concerned. The last major influx of cash was in 2004. Recent statements from management gave the impression that they - Intel - remain committed to Ireland; for now.

Back to the $1.45 billion fine. The diplomats at the EU, one hopes, thought the consequences of such a fine through thoroughly prior to implementing it. Fighting for competitive space - is that not what capitalism is all about? The bottom line is that Intel is being punished for doing what business do to grow and prosper.

I bring this up because that $1bn+ is an amount that could be invested in the aging Irish plants. Does the EU think that Intel will pull out their check-book, pay the fine and everyone will walk away friends; lessons learned? Doubtful.

What will the EU, and of more concern Ireland, do if Intel on paying the fine, deducts the amount from future investment in the Emerald Isle? What if they use this to help their decision to move its operations to its new plant in China? Or to Israel where corporate taxes are being cut so aggressively that they will soon be lower than Ireland's? The Israeli government is jumping through flaming hoops to attract the chip-maker.

An article in the Irish Times on Friday, August 14, about Intel's claims that "Leixlip plant still part of Intel's plans" would give the reader pause for concern as there were many things left unsaid, gaps to be read between the lines. The timing of the article was anxiety-raisingly close to the announcement of the EU fine. Topped off by a quiet lack of enthusiasm by the subject of the article Intel's Irish General Manager, Jim O'Hara, who gave an air of quiet resignation on the topic of 'the future' as he recited party slogans.

Will Intel engage in a tit-for-tat with the EU fine? Hard to say. They have been vague in their commitment to Irish operations. The recent closing of one of the older factories and the laying off of 300 people does not bode well.

That the plant has not attracted recent Intel investment has led to speculation that Intel is running down Irish operations. The Euro's strength has been a worry for export competitiveness. How can the Irish plant compete when for every dollar worth of manufacturing they have to pass on a 40% surcharge in currency difference or absorb it to their own bottom line?

One can only hope that the EU fine - if paid - is not the straw that breaks the camel's back and that Ireland ends up paying the price; which would be not be good, not just for the employees and subcontractors, but for the country. Not good at all.

Reference:
Leixlip plant still part of Intel's plans
http://www.irishtimes.com/newspaper/finance/2009/0814/1224252551909.html