Intel to make chips in China

Intel has announced it will open a wafer fabrication facility in China, a significant milestone in the chip giant's manufacturing history.

The plant will be located in an industrial rust-belt hub in northeast China called Dalian in the Liaoning Province and will cost around $2.5bn to build. The Chinese government is providing financial incentives to Intel according to a company spokesman but has also built up the infrastructure around the city.

Chips will start coming out of the factory in the first half of 2010. Initially, Intel will make chipsets - which shuttle data back and forth across the processor to the microprocessor of the computer - and possibly communications chips.

The decision to concentrate on chipsets, rather than flash memory or processors, derives from US regulations that prevent domestic companies from bringing cutting-edge chipmaking equipment to China. Generally, US companies can only bring in so-called N-2 equipment, or equipment that's two generations behind the most advanced contemporary standard. The restrictions exist to prevent China (among others) from using the machinery for chips for advanced weapons.

Dean McCarron, principal analyst at Mercury Research, said: "They will have this older process technology over there but it is much better suited for making chipsets."

The definition of chipsets is broad the Intel spokesman said but can include WiMax and wi-fi chips, cellular chips or traditional chipsets. Many of Intel's communication chips now get made by Taiwan Semiconductor Manufacturing Co. (TSMC).

Michael Kanellos writes for CNET News.com