How recent Intel layoffs may affect the Oregon economy

The semiconductor company Intel isn’t based in Oregon, but it does have large manufacturing facilities in Hillsboro and Aloha. Although the company received $8.5 billion in federal subsidies, it says cuts to its labor force are needed worldwide. In Oregon, this means about 1,300 people were laid off. Oregonian/Oregonlive.com business reporter Mike Rogoway has been covering this industry for decades and joins us to share more details about the effect of this global company’s decisions on Oregon.

Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.

Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. Oregon’s largest private employer is in the middle of one of the largest single rounds of layoffs in state history. Intel announced last week that 1,300 jobs in Oregon would be cut over the next month. It’s part of the company’s massive nationwide cost-cutting effort. Mike Rogoway covers business and technology for The Oregonian, and he joins us now. It’s good to have you back.

Mike Rogoway: Yeah. Thanks for having me..

Miller: Before we get to these layoffs, can you just give us a sense for the scale of Intel in Oregon, what Intel means to Oregon?

Rogoway: Well, I think we overlook them a lot of the time because all their work is done behind closed doors in these clean rooms. They very rarely let anyone in, but they are Oregon’s big economic engine. They started the year with 23,000 employees in Washington County, and that sort of undersells it. They spend billions of dollars every year upgrading their factories, maintaining them. There’s an army of contractors who come in there. It’s an industry that pays an average wage of $172,000. And that’s …

Miller: Industry, even in Oregon – $172,000 average wage?

Rogoway: It’s skewed upward by executives, top scientists, things like that. But one thing I like to emphasize is there’s such a range of people who work in this industry. It’s everything from, they got 2,000 PhDs out there, and then they have thousands of people who have two-year associates degrees who are making, you know, pretty good wages, not $172,000, but starting right off, you can be making $60,000 [to] $70,000 out there. So it’s a range of people making good livings.

Miller: So let’s turn to these job losses. As you reported, some positions were eliminated after retirements and buyouts, but the company said that was not enough to meet the 15% total staffing reduction they want to see nationwide. So layoff started about a week ago. Have patterns emerged in terms of the positions that are being cut?

Rogoway: I’d say it’s sort of everything. It’s all of the above. When you’re cutting this deeply – and they’re looking to save $10 billion out of their budget next year – you’ve got to cut from everywhere. So they’ve just disclosed the job titles of the people they let go. And there’s eight vice presidents on the list. There’s 10 Intel Fellows – that’s their top researchers. There’s 175 managers, there’s 16 administrative assistants, there’s people in the factories, there’s people in their labs, it’s every type of thing. And as a business, these people aren’t there if they weren’t contributing something. And so you really are losing something, I think, when you’re cutting that broadly.

Miller: Why is Intel struggling?

Rogoway: They’re essentially making products that aren’t what the market wants right now. For many, many years, decades, Intel was the world’s largest chip maker. They were the most advanced. They had, maybe we’ll say, two big problems. Number one, they fell behind technologically in 2017, 2018, that era. They’d always invested in staying ahead of the market. They stumbled and they fell behind. Their rival, TSMC and ACE chip manufacturer in Taiwan took a step ahead.

The second thing is that Intel isn’t making the chips the market wants right now. Intel makes these CPUs. They’re great in PCs, data centers. Everyone wants AI right now and that’s NVIDIA. Their GPUs are better suited for that. Intel is not in that space at all, in the advanced GPU space. So they’re skating to where the puck was.

Miller: … as opposed to where it’s going.

Rogoway: Yes.

Miller: How has the company described its plans going forward? What are they telling investors?

Rogoway: Well, essentially they’re saying their market didn’t come back as fast as they had anticipated. Coming out of this technological stumble, they hired a longtime Oregon executive who’d left the company and they brought him back, Pat Gelsinger. He said, essentially, we’re gonna spend our way back into competitiveness. And so he spent billions of dollars, committed billions of dollars to new advanced factories, new engineering. Intel had success in the past two years, especially with catching up on its chips. But the problem is the market’s not there. So their plan is, we’re going to cut and we’re going to hold on until the market returns.

Now, one big departure, Intel is trying to make is Intel has always made the chips that they engineered and pretty much only for themselves. They want to open their factories and say we make the most advanced chips. Come on in, we’ll make your chips for you. You don’t have to go to TSMC. You don’t have to go to Taiwan. Come, we’ll do it for you. The problem is that Intel hasn’t done that before, it hasn’t done it successfully. And companies are a little reluctant to come in, particularly because Intel could be a competitor of theirs because Intel also designs chips. So they’re reluctant to hand Intel their blueprints and say make this chip for us, if they think Intel is also their competitor.

Miller: So here we are talking about layoffs, gigantic ones, but you’ve also been reporting on the possibility of a bigger Intel presence in Oregon, something that’s counterintuitive for a business that’s contracting. So what kind of growth is Intel thinking about here?

Rogoway: Yeah, it is a paradox. And the issue is that Intel needs to continue to invest in advanced technology. They need to stay at or ahead of the curve in the market. And so they’re talking about spending somewhere $30 [billion] to $40 billion to modernize their factories in Hillsboro. Now, these are their most advanced factories anywhere in the world. This is where they design each new chip and make it there first. So it has to be kept up to speed. And they want to build a fourth phase, essentially increasing the size of their main research factory out there. It’s called D1X by a third.

Now, they’ve been vague on timetable for that and I would say that they’re probably husbanding their cash right now. They haven’t said, hey, we’re going to do it in this year or that year. I would say they’re going to slow walk it probably,

Miller: Nevertheless, you’ve been covering what seems like a still pretty rowdy debate over expanding the urban growth boundary in Washington County for chip manufacturing. Where does that debate stand right now?

Rogoway: Yeah. So this is an interesting thing. If land use policy can be considered interesting, we’ll try to make it so. So last year, the legislature gave the governor special powers to circumvent Oregon’s land use law and say she can bring in land into the urban growth boundary for the chip industry, which needs hundreds of acres typically for a new factory. The Feds want to put a new research center, three of them, in different parts of the world. They’d be potentially a billion dollars each. Oregon and Intel really want the federal government, the Commerce Department, to spend this billion dollars in Oregon, to build a long-term anchor for the state. So the governor says, OK, here are 373 acres that I will set aside for this if the federal government will put it here. But obviously, if Intel is stumbling, the Commerce Department might think twice about whether it wants to double down on Oregon.

Miller: Finally, last month, you reported that Intel was given a contract to make chips directly for the Department of Defense, a contract that could be worth $3 billion. Do we know if any of that work might be done here?

Rogoway: Yeah, this is part of the reason the federal government wants more domestic chip manufacturing because they don’t want to be reliant on chips made in Asia for defense applications. The trick is that Intel makes the bulk of its chips outside Oregon – probably won’t be concentrated here. It may trickle down here because Oregon has a piece of what everything Intel does. More important, probably, the Feds, through the Chips Act from 2022, through $8.5 billion in direct subsidies to Intel and billions more in federal loans and tax credits, that will come to Oregon, that will help finance expansion here.

Miller: Mike, thanks very much.

Rogoway: Yeah, thanks Dave.

Miller: Mike Rogoway covers business and technology for The Oregonian. He joined us to talk about the announcement last week – not a surprise, but a stunning number – that 1,300 Intel employees are being laid off.

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