Moore’s law has been good to New Mexico.
Named after Intel Corp. co-founder Gordon Moore, the law states that the number of transistors on a piece of silicon will double every two years, something Moore predicted in the 1960s.
In effect, that means Intel is constantly working to cram more transistor-based processing power onto its chips, a perennial process that leads to multibillion-dollar investments in Intel factories worldwide every two years or so to be able to produce the latest, greatest processors.
Such investments have transformed Intel’s plant in Rio Rancho from a fledgling 25-person operation in 1980 into New Mexico’s largest technology company with 3,300 employees. The Rio Rancho site has been upgraded, or completely overhauled, five times since the 1980s.
Now, with Moore’s law still pushing Intel to double down, or perhaps double up, on the number of transistors it crams onto each chip, New Mexico is vying for the next round of investment in factory upgrades to produce smaller transistors, measured in nanometers.
The plant was last upgraded in 2009 to go from 45-nanometer transistors on chips to 32 nanometers. But that means today Rio Rancho is two cycles behind the curve, since Intel is already producing 22-nanometer chips at other factories, and the company is building manufacturing capacity for 14-nanometer chips at its plants in Arizona and Ireland.
“The next node is 10 nanometer, and no decision has been made yet about where that will be,” said Kirby Jefferson, who became Intel’s Rio Rancho site manager in May. “New Mexico could be 10 nanometers, but next after that is seven nanometers, and maybe New Mexico could be the place for that.”
Those are big-money decisions. The last Rio Rancho upgrade cost about $2.5 billion.
A decision on 10-nanometer technology could still be up to a year away, Jefferson said, but plant operators are working to “pre-position” the Rio Rancho site for the selection process.
“Intel waits until the last possible moment to make a final decision, so we do small, minor investments to make sure we have options open to us as we go forward,” Jefferson told the Journal in a lengthy interview.
“We’re in the midst of that right now, although that doesn’t mean any decisions have been made. We’re scoping out what’s required inside the fab to design for it, and we’ve already done a fair amount of that.”
Winning new investment at the Rio Rancho site would be a major boost to the local and state economy. The company has a direct $909 million average annual economic impact in New Mexico. That includes more than a $300 million in payroll for its employees and $245 million it spends on average every year with local businesses.
Permits in place
State and local officials are also working to provide Intel with the regulatory framework and infrastructure it needs to accommodate new investment.
For example, the state Environment Department updated the company’s air quality permit in May 2011. That allowed Intel to install new pollution control and monitoring equipment to help prepare the plant for future expansion.
State Economic Development Secretary Jon Barela said state government expedited the process.
“We got the air permit approved in about three months,” he said. “It took more like three years under prior administrations.”
Gov. Susana Martinez’s administration also pushed hard for and won approval of a “single sales factor” tax formula in this year’s legislative session.
Under that change, a corporation’s local payroll and property no longer have to be included along with the value of its local sales when assessing how much it owes the state in corporate income taxes.
In the past, that triple-factor assessment penalized manufacturers like Intel, which has large property holdings and payroll here but sells most of what it makes out of state.
In effect, under the old system, Intel and other companies ended up paying more income taxes if they expanded operations in New Mexico and less taxes if they cut their employee counts and payroll.
Under the new formula, Intel and other manufacturers may now calculate their taxes based solely on how much of their sales occur in New Mexico.
“With the single sales factor, the New Mexico Legislature and the governor delivered a very important law that makes New Mexico competitive with other locations where we have domestic factories,” Jefferson said. “That was really key.”
In addition, the state approved a cut this year in the top corporate income tax rate, from 7.6 percent to 5.9 percent, to be phased in over five years starting in 2014.
Meanwhile, the city of Rio Rancho has offered Intel assurances it can provide extra water if the company expands operations, Mayor Thomas Swisstack said.
“It’s critical for Rio Rancho to provide them with the amount of water needed to go to the next level, and as a city, we’re in a position to do that,” he said. “Based on our last conversations with them about four or five months ago, they’re looking at maybe 4 million gallons more per day.”
Intel’s current permit, issued in 1994, allows it to use up to 1 billion gallons of water per year, although the plant consumes less than that. The water it does use comes from both ground pumping and from the Rio Rancho Utility Services Division.
About 85 percent of Intel’s water is later sent back to the Rio Grande after being treated by the Albuquerque Bernalillo County Water Utility Authority.
But, as years pass, the company must still buy up water rights from agricultural users and others to compensate for projected reductions in the water table from ground pumping and the resulting declines in water flow to the river.
That’s a thorn in Intel’s side, and something that could potentially be a disadvantage for the Rio Rancho site when competing with other states for corporate investment.
Swisstack, however, said the Rio Rancho Utility Services Division can supply all the extra water Intel needs, while also providing additional water rights needed to offset consumption.
That’s because the housing slump has created an excess of water rights in Rio Rancho that have never been drawn down, and that could be used to meet Intel’s needs.
“A lot of commitments were made on paper,” the mayor said. “We could pool those permits back because a lot of that housing development didn’t emerge.”
Thanks to that type of support – in terms of regulatory, tax and infrastructure issues – New Mexico is now on fairly even footing with other states vying for investment.
“I believe we’re well-positioned,” Jefferson said. “There’s nothing in the bank, but I feel we’re very well-supported by the local community.”
New Mexico still has some disadvantages, particularly its low-performing schools, Jefferson said. That makes it difficult at times for the company to meet a goal, set by Sandoval County, of making most new hires New Mexico residents.
In addition, New Mexico and other locations in the U.S. face competitive disadvantages with other countries, where Intel can often negotiate better tax and regulatory benefits.
Nevertheless, New Mexico is squarely in the running for new investment.
“What does that mean for the New Mexico fab? I don’t have an answer,” Jefferson said. “But I can say we’re looking at a future node that is a possibility.”
Swisstack said he is “cautiously optimistic.”
“I feel we’re in a better position now than we were in the last couple of upgrade cycles,” he said.
Barela said New Mexico has boosted its chances by becoming more competitive.
“I can’t think of any obstacles or barriers now for future growth at Intel,” he said. “I think we’re very well-positioned compared to other states.”