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Has Intel Smelled the Coffee?

Carolyn Mathas
News Analysis
Carolyn Mathas
4/7/2014
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Intel is rumored to be laying off manufacturing staff in Costa Rica and relocating resources to Asia-Pacific as it bids to lower costs and compete on price in the mobile and server chip sectors.

Local media reports in Costa Rica, where Intel is a significant and important employer, suggest that about 1,500 of the 2,500 Intel Corp. (Nasdaq: INTC) manufacturing staff may lose their jobs as a result of the move. About 1,200 jobs in Engineering and Design will, however, remain unaffected and may even grow, with the potential addition of 200 more positions being suggested.

If the reports are accurate, it would be a major blow to the Central American country, as Intel's investment of $800 million over the years has resulted in microprocessors accounting for more than 20% of Costa Rica's exports in 2013, which in dollar terms is about $2.4 billion worth of chip-related exports. (And you thought it was just coffee and bananas being shipped out of Costa Rica…)

Political rhetoric indicated that Intel's move may be the result of rising utility costs. In late February, the Costa Rican Union of Chambers and Associations of Private Business Sector (UCCAEP) stated that the cost of electricity is dramatically pushing up production costs in the country. The organization performed a survey and asked employers if any single factor was leading to higher costs: 45% indicated that electricity prices had a high or very high impact, while 20% indicated that electricity prices had a greater impact than fuel prices and wage adjustments.

But if Intel is pulling out of manufacturing in the country in a significant way, it's likely not just because of increasing power prices or the political unrest cited by some (Costa Rica has just had a presidential election, won by Luis Guillermo Solis of the centre-left Citizen Action Party).

More likely is that this is part of a bigger shift by Intel towards an aggressive push into markets where it currently is not the dominant player. While the company controls most of the global high-end processor market, its products in the mobile and server markets are not price-competitive. Intel looks ready to remedy that situation and try to build a presence in the low-price device market, where all the action is. (See Intel CEO Gives It Large in China and 2014: Intel's Year of Living Wirelessly?)

As a result, it's most likely looking to cut every dime of manufacturing cost possible so it can take on the likes of Qualcomm Inc. (Nasdaq: QCOM) and Advanced Micro Devices Inc. (NYSE: AMD).

Whatever the reason, if the rumor is true, and Intel is drastically cutting back its presence in Costa Rica, it would be a major blow for the tiny country of only 4.8 million residents, and present Solis, who says he will meet with Intel in the coming week, with a significant early challenge.

— Carolyn Mathas, Contributing Editor, special to Light Reading

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Ray@LR
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Ray@LR,
User Rank: Blogger
4/9/2014 | 11:56:25 AM
Re: It's Official
Thanks for the update Carolyn - like you say, that sounds like a real blow to Costa Rica.

And good news for far east Asia I guess...
CMathas
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CMathas,
User Rank: Blogger
4/8/2014 | 4:04:02 PM
It's Official
Intel announced today that it will close the Costa Rica chip assembly plant and lay off 1,500 workers. The closure will take place over the next six months. As reported, Intel will keep engineering and design in CR. I reported they will add 200 jobs and that is still in the works. The total in this department will then reach 1,200. that's a tough one, Costa Rica.
MikeP688
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MikeP688,
User Rank: Light Sabre
4/7/2014 | 6:29:33 PM
Re: Left of center?
What is unfortuante is how such people take things for granted--they should look at Afghanistan in how people defied the threats in order to speak up.    I do think though that Intel--just like Microsoft--will be resilient enough to adapt to the new realities.   It will be fascinating to observe, though as the dynamics work itself out.
CMathas
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CMathas,
User Rank: Blogger
4/7/2014 | 6:23:56 PM
Re: Left of center?
What's sad is how few people showed up to vote. The country really does have serious challenges ahead. Average wages are extremely low, jobs are not plentiful and although the education level is said to be very high - that may be true in San Jose, but maybe not so true in the balance of the country.

 
MikeP688
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MikeP688,
User Rank: Light Sabre
4/7/2014 | 6:19:07 PM
Re: Left of center?
I have been watching with curious eyes the current election process in Costa Rica.  It is a country that--despite a very proud heritage you've alluded to--has its' share of challenges as it grapples with healthcare and now w/this blow to the economy, how to somehow continue to navigate in a rather challenging World that is now the World Economy.

As for intel, I am of the view of it is a bit late into the game.    The major players today are truly amazing with the product mixes they're offering.   Can Intel adapt?  Time will tell.

 
CMathas
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CMathas,
User Rank: Blogger
4/7/2014 | 3:45:06 PM
Re: Left of center?
Read again - the left-of-center had to do with the political party of the newly elected, not the country in general. You are absolutely right - as in correct - about the fact that the country does not have a military and it is one of the most stable governments in the region. I spent nearly a year living in Costa Rica and it is a most enjoyable place, once you get past big bugs, howler-monkey alarms at 5 am, and scorpions finding their way inside...

 
tb100
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tb100,
User Rank: Moderator
4/7/2014 | 3:37:25 PM
Left of center?
I haven't been keeping in touch with what's been happening in Costa Rica lately, but where does this 'left of center'=unrest argument come from?

Unstable dictatorships in Latin America come in all forms, left and right both well represented.

Costa Rica, on the other hand, has always had a stable democracy, and, in fact, it doesn't even have a military! Do you know something we don't know about Costa Rica stability or is this just an off-the-cuff remark?
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