IBM defends investment in new microchip plant

By Caroline Humer

EAST FISHKILL, N.Y: International Business Machines Corp. Chief Executive Samuel Palmisano on Wednesday defended IBM's new $3 billion microchip plant, saying that investment is the key to IBM's growth. "We understand it is an economic downturn and whereas people would not encourage us to invest in this environment, we see the long-term opportunity in the industry," Palmisano said at a ribbon-cutting ceremony for the East Fishkill plant.

Palmisano said the plant and the deal to buy PricewaterhouseCoopers Consulting are important to the future of the Armonk, New York-based computer maker. IBM on Tuesday said it would buy PricewaterhouseCoopers Consulting for $3.5 billion, expanding its services business in the company's largest acquisition ever.

The East Fishkill plant, which is due to start producing chips in the first quarter of 2003, is IBM's first 300 millimeter semiconductor plant, which uses dinner plate sized wafers to print semiconductors. That is in contrast to less efficient salad plate sized wafers that are the current standard. IBM's plant, which is the size of several football fields, was announced in the fall of 2000 and at $3 billion, is IBM's largest single capital investment. The plant's opening comes at a time when the semiconductor industry is in a severe downturn. Some Wall Street analysts have criticized the move.

Sanford C. Bernstein analyst Toni Sacconaghi said recently in a research note that the cost of IBM's plant could weigh on future earnings if demand for chips doesn't pick up. John Kelly, head of IBM's technology operations, said that demand for manufacturing microchips with the latest technologies remains strong. The advanced technology factory at IBM's Burlington, Vermont location is running at full capacity, Kelly said.

The fully automated plant will make microchips that are used in high-performance computers and in the telecommunications sector. It will also be IBM's primary production facility for microchips used in popular gaming systems made by companies like Nintendo and Sony Corp. For instance, Kelly said IBM would make the chips for Sony's next-generation PlayStation 3 at the facility.

© Reuters