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