Despite investments worth $5 billion, Intel (INTC) shelved the opening of its chip plant Fab 42 in Arizona, which was once cited by President Obama as an example of U.S. manufacturing potential.
This crucial decision came in the wake of a slump in demand for PC microprocessors, which happen to be the main source of revenues for Intel. As per research reports, global PC shipments fell by approximately 10% in 2013.
Intel is one of the world’s top chip manufacturers, but of late it has been hit hard by the slowdown in demand for PCs. Despite its endeavors to become a top supplier for smartphones and tablets, which have been gaining strength, Intel’s success in this regard has been limited.
Intel is not the only company to have suffered due to the PC shipment decline. PC makers including companies like Hewlett Packard (HPQ), Dell Inc., IBM Corp. (IBM) and Apple (AAPL) have also experienced a sharp decline in revenues. As per reports, the main reason for the decline in PC sales is the relatively higher cost of PCs, which is leading customers to opt for smartphones and tablets.
In order to reduce the cost of production and thus increase profitability, Intel and some of its competitors like Samsung Electronics have decided to manufacture larger-sized wafers. Intel had planned to equip the Arizona fab with machinery needed to manufacture these large-sized wafers.
Reportedly, the majority of Intel’s existing plants are operating at less than 80% capacity, indicating that either demand remains below expectations or that Intel is gearing up for significant growth in the not-too-distant future. Since the company recently recruited more than a 1,000 employees at the site, it’s very likely that the second theory is correct.
Currently, Intel has a Zacks Rank # 3 (Hold).