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The Flyover Coalition

The 40,000-Foot View

A bird's-eye perspective by Dale Buss, founder & executive director of The Flyover Coalition

Why Intel’s
‘Silicon Heartland’ Is
So Important

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Intel Corp. CEO Pat Gelsinger presumably flew right over us this week when the head of the Santa Clara, California-based giant microchip maker ended up in Washington, D.C., to share the podium as President Biden congratulated the company for its decision to invest $20 billion in a chip-manufacturing complex in America.

But there was no denying attention for Flyover Country in Gelsinger’s movements, because Biden was thanking Intel for its decision to put what will be the world’s largest chip plant smack in the middle of Ohio, on the outskirts of Columbus. 

 

Intel’s announcement was the industrial equivalent of Amazon’s selection in 2018 of Arlington, Virginia, for its “second headquarters” and the creation of tens of thousands of jobs for that area after hot pursuit of the economic-development plum by hundreds of U.S. localities. And it carries great promise not to suffer the same fate as the “Wisconn Valley” tech ecosystem that was supposed to follow Foxconn to Wisconsin several years ago.

Assuming Intel gets some financial help from bipartisan legislation to bolster American chip manufacturing that is working its way through Congress, the 1,000-acre site in Ohio will welcome Intel’s first plant in America in 40 years and become a hub for researching and developing the company’s most advanced chips. Gelsinger went so far as to call the initiative the creation of a “silicon heartland.”

 

And indeed, the implications for Flyover Country as well as the rest of America will be profound. The initial phase of the project is expected to create 3,000 Intel jobs and 7,000 construction jobs and to support tens of thousands of additional local long-term jobs across a broad spectrum of suppliers and partners.

Intel said it could end up investing as much as $100 billion over the next decade to eventually build as many as eight chip factories in Ohio, and another $100 billion in addition on partnerships with educational institutions to expand a pipeline of talent and bolster research programs in the state.

 

Center of an Ecosystem

 

Here’s the most exciting part: Intel’s gambit not only will make a global chip-making capital out of central Ohio but also will help create a much broader ecosystem for hundreds of miles around in the heartland as a vast network of suppliers set up shop to feed the Intel operation.

From the git-go, Intel included some of these suppliers in its big announcement, and chiefs of at least two of these companies made it clear their own development and manufacturing footprints would be put down across the region, not just in Ohio.

Applied Materials President and CEO Gary Dickerson, for instance, said that the company will work with Intel “to build a robust semiconductor ecosystem in the Midwest.” And Seifi Ghasemi, head of Air Products, said that the Intel site “will bring renewed energy and an exciting innovation edge to the proud manufacturing heritage of Ohio and the broader Midwest.”

In other words, consider Intel’s intention to create a “silicon heartland” as a much more serious version of what state leaders in Wisconsin once hoped would happen with Foxconn’s announcement to build a huge glass-screen plant in the southeastern corner of the state. 

 

The Taiwan-based tech giant and then-Wisconsin Governor Scott Walker announced with great fanfare in July, 2017 – at Donald Trump’s White House – that Foxconn would invest $10 billion in the facility, and a huge supplier community would grow up around it. Walker even coined the term “Wisconn Valley” to describe the ecosystem Foxconn would help build in the state and the region.

    

But soon the whole initiative got caught up in Foxconn’s dithering over what size screens it would build and in electoral politics, with charges that Walker gave away the store in financial incentives helping scuttle his re-election campaign in 2018.

    

Ohio’s “Silicon heartland” is highly unlikely to fall into the same abyss as Wisconn Valley for a number of reasons. They include the huge incentives for Intel and its customers of constructing a new domestic chip plant for the first time in decades and the considerable help that the federal government seems ready to give this venture because of its potential importance to the American manufacturing economy as a whole and even to national security. Wisconn Valley enjoyed no such advantages, unless you count President Trump’s participation in the groundbreaking.

 

Why Not Here?

 

Intel’s move is a huge development for a central U.S. that for decades has seen the economic fruits of the big-tech explosion mostly go to increasingly dominating coastal concentrations including Silicon Valley, Boston and the Research Triangle of North Carolina, as I wrote for ChiefExecutive.net on Friday.

As in the argument I made in this space and in the Detroit News last May, fabricating chips in Flyover Country makes sense for a number of reasons, including an ample supply of fresh water, geologic stability, our logistical position in the center of the country, and our dense network of automakers and other major manufacturing operations, such as appliances in Kentucky and industrial equipment in Missouri. 

Contrast some of our innate advantages to those of places such as Arizona which already have been enjoying big investments in microchip companies.

    

Meanwhile, the creation of a true silicon Death Star would nicely complement what promises to be a vast expansion of automotive manufacturing in the heartland through investments in electric-vehicle and battery plants in Michigan, Tennessee, Kentucky and elsewhere by General Motors, Ford, Stellantis, Toyota and others. 

      

Gelsinger and others are touting the project as critical to help U.S. auto manufacturers and others finally resolve the microchip shortage that developed during covid and has been at the core of the colossal supply-chain problems that have wracked American output and the entire economy since over a year ago.

 

“When you think of the auto industry, you’re going to see us have more to say with the auto-industry leaders as they are looking to us and others to build up and satisfy their demands,” Gelsinger said on CNBC. “Because as we’ve seen, the economic impact of not having enough chips to meet the growth of that [demand] has been inflationary and job-impacting, so this is critical to support that industry, which is already very present in the heartland, and now the silicon heartland.”

    

American car makers saw sales sliced last year because they had allowed their chip orders from plants in Taiwan and elsewhere to slide to makers of consumer electronics and other goods that were popular during the pandemic – and they simply ran out of new vehicles to sell. The disruption was so great that, at least for last year, Toyota actually usurped General Motors’ decades-long position as America’s biggest car seller.

 

Help for Autos

 

For at least a year, the automakers have been struggling to get their chip consignments back up as Asian manufacturers fight through covid shutdowns and respond to reallocation demands from car companies. The situation has been improving incrementally in recent weeks. But U.S. auto executives expect the chip shortage to remain a significant affliction at least into late this year and probably beyond.

    

But the Intel announcement doesn’t help the auto industry in the short term or really for the next four to five years. So, beyond the prospect of providing long-term supply-chain resilience because automakers in the Midwest, Mid-South and South can get their chips from up the road in Ohio instead of from Taiwan or Malaysia, Intel’s announcement has much broader implications. It also will affect the future of manufacturing in America overall, moves by other U.S. companies to decouple themselves from Asian supply chains, and the increasing geopolitical wrangling between China and the United States.

    

For American manufacturing in general: For Intel to commit to building its biggest plant in the American heartland represents a huge signal for the future of manufacturing in this country.

        

Gelsinger has been vocal about the need for the United States to host more chip factories, as well as Europe, after decades of precipitous decline in chip-making in those two regions. He has said that such a rebalancing of production is necessary to reverse its increasing concentration in East Asia. 

    

President Biden, meanwhile, wants Congress to approve $52 billion to expand U.S. semiconductor manufacturing under a bipartisan U.S. Innovation and Competition Act. Intel didn’t wait for the promise of federal cash to make its announcement, but such aid certainly could promote further chip-making investments in this country.

    

But the impact of this announcement will include ripples far beyond chipmaking. Building a new microchip plant is one of the most significant capital investments any manufacturer can make. The fact that Intel is willing to do that, in today’s uncertain economic environment, is a commitment to American manufacturing that likely will go a long way in persuading others that more domestic factories are worthwhile.

    

For supply-chain restructuring: U.S. manufacturing CEOs have been moving for several months now, each in their own ways, to attempt not only to build multi-sourcing resilience into their supply chains but also to cut their dependence on Asian sources where they can. Intel’s announcement brings this impulse to its full flowering. 

    

Gelsinger explicitly spelled out the company’s desire to restore its manufacturing prowess in chipmaking – now dominated by Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. – and to do it with a huge new investment in the United States. In the copycat business of manufacturing sourcing, this is likely to have a huge impact.

    

For geopolitics: To the extent that securing its own huge new supply of microchips gives the United States a strategic boost in its relationship with China, Intel’s move could have wide-ranging geopolitical implications. Gelsinger has cited increasing tensions between the two superpowers. And China’s threatening actions specifically have included saber-rattling against Taiwan, a crucial source of microchips for global markets.

    

Even beyond that, Intel’s investment could become another milestone in the deterioration of the post-World War II economic order and the globalization of production arrangements that have defined the worldwide system for more than a half-century.

All of this makes it exciting to contemplate the importance of Intel’s incursion into Flyover Country.

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