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IBM to invest $5B in chips
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October 10, 2000: 4:00 p.m. ET
Tech titan says capital outlay is largest expansion in company's history
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - IBM said Tuesday it will spend $5 billion to expand its semiconductor manufacturing capacity, which will be the largest capital investment in Big Blue's history.
Half of that will be used to build a new plant in East Fishkill, N.Y. The remainder will be used to expand chip-making capacity in IBM's existing Burlington, Vt., and Yasu, Japan, facilities, as well as in Altis Semiconductor, a joint venture with Infineon located in Corbeil-Essonnes, France.
IBM Chairman and CEO Lou Gerstner said the investment is being made to enable Big Blue to keep pace with the surging demand for chips used to build out the Internet infrastructure.
The new plant will focus on making chips used in network servers, Internet access devices and other networking and communications equipment, Gerstner said.
"That's where the semiconductor industry is moving today," Gerstner said at a news conference in Manhattan. "It really is becoming a very different industry than just a few years ago."
Over the past several years, IBM's Microelectronics group has transformed itself from being primarily a supplier of components to other IBM divisions to a strong competitor in the merchant market, selling its products and licensing its technology to other companies as well.
 The new plant, which is expected to add 1,000 new jobs to the upstate New York economy where it is being built, will produce 12-inch silicon wafers. Gerstner also said it will be the first to mass produce chips at line-widths below 0.10 micron, which is less than 1,000th the thickness of a human hair.
George E. Pataki, New York's Republican Governor, said the investment in the East Fishkill plant represents the single largest capital investment ever in the state's history.
"This $2.5 billion investment, the largest industrial investment in America in over five years, could have been anywhere," Pataki said. "This represents not just the pinnacle, but another glowing example of how we can outcompete the rest of the country and outcompete the rest of the globe."
But IBM's capacity expansion plans come amid mounting concerns that the semiconductor industry is on the verge of a downturn.
The semiconductor industry historically has been characterized by boom-and-bust cycles, with up periods of undersupply followed by down periods of oversupply. While most analysts agree that the current semiconductor cycle will not begin to turn down until 2002, several have come out recently warning that the downturn may come before that.
IBM's new plant is expected to become operational in the second half of 2002.
But Gerstner brushed aside concerns about the industry's cyclical nature, noting that the kinds of products that have been most affected by it have been commodity-type products such as dynamic random access memory, or DRAM.
"The products that will be built in this plant and all of our semiconductor plants are at the very high end, high value-added segment of the market," he said. "They're not commodity products. Not a lot of companies are going to be able to make them, and they are in the segments that are growing most rapidly, where we don't expect to see a lot of boom-or-bust."
 As have most high-tech companies, IBM's stock has been under a lot of pressure in recent weeks as investors brace for the latest batch of quarterly earnings reports. Several companies, including leading chip maker Intel and PC heavyweight Dell Computer, have warned that their latest results will fall short of previous expectations.
Gerstner declined to comment specifically on IBM's quarter, or about the skittishness that has overtaken the market recently with respect to the high-tech industry. IBM is expected to post its latest quarterly results Oct. 17, with analysts expecting to see a profit of $1.08 per share.
Shares of IBM (IBM: Research, Estimates) fell in afternoon New York Stock Exchange trade Tuesday, tumbling $4.69 to $113.25, a 4 percent decline. 
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IBM
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