Beware the Expensive Castle

Money may not be able to buy love or happiness, but apparently it can definitely create a barrier for the competition.

Intel Corp. is turning 40 years old Friday, and patting itself on the back for pushing the pace of computer-chip progress. Few competitors are applauding, though, for reasons that become clear on a visit to a factory in Hillsboro, Ore.  The Silicon Valley company, supplier of the electronic brains in most computers, is expected to reach nearly $40 billion in revenue this year. So Intel has a lot of money to plow into new products and other initiatives.

They definitely see manufacturing as a competitive advantage and worthy of investment.

Few weapons compare with D1D, the Hillsboro, Ore., plant where silicon wafers move among complex machiens in a huge production area the size of 3.5 football fields.  What sets the plant apart isn't manufacturing capacity but a production recipe that makes the microscopic transistors on Intel's latest chips especially small and fast.

Chipmaking is incredibly expensive, especially in terms of initial capital investment.  New plants can literally cost billions, plus the cost of developing new technologies.  Few companies have the resources required.

"The question is, 'Are companies economically capable of chasing it?'" said Richard Hill, chief executive of Novellus Systems Inc., a toolmaker for the industry.  "Intel is in a class of their own."  Advanced Micro Device Inc., Intel's chief rival, is discussing ways to spend less on manufacturing technology. 

In theory, Intel could slow the pace of miniaturization to try to maximize profit.  The engineers in Oregon don't see that happening.  "I'm not sure we know how to take our foot off the gas," said Mark Bohr, a director in Intel's technology and manufacturing group.

And perhaps that's a problem.  The ability to invest huge sums in factories and technologies is definitely a competitive barrier, but small companies are remarkable in that they can sometimes create a bridge over that mote.  Or perhaps a road that avoids the castle in the first place.  The innovation that changes the fundamental rules of the game, and can sometimes make huge investments immediately worthless.  Presumably Intel is working just as hard to keep an eye on the market and competitor innovation to ensure that doesn't happen.