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One point to add to the increasingly vigorous debate around Intel's (NASDAQ:INTC) plan to set up a semiconductor fabrication facility ("fab") in China:

Intel ranks high in my ratings of companies who are China savvy, and make business decisions in China on the basis of what makes commercial sense, not on what makes government officials smile. Simply knowing what I do about their decision-making process on these matters I can tell you that this is not some multi-billion dollar exercise to suck up to Beijing.

Anyone seeking to hurl boulders at this move - and I include our distinguished solons in Washington in this group - had best look at the commercial realities. Leaving aside for the moment that the technology Intel is moving to China is at least two generations behind what is considered to be the state-of-the-art, the market for their products have shifted heavily to China.

Closer to the Customer

The PriceWaterhouseCoopers annual update on China's semiconductor industry is an excellent source of information on the business, and PWC should be complimented for making this resource publicly available. (Full disclosure - PWC does my taxes.) The most recent report points out some interesting facts:

• China accounts for 25% of the global market for semiconductors.

• Over 86% of the growth in global semiconductor consumption in 2006 came from China, a trend that is expected to continue well into the future.

• At the same time, only 7% of the global semiconductor manufacturing capacity is in China.

Something tells me that the hard-headed people at Intel are responding purely to customer pull in a business environment that is increasingly hostile to imported components.

Washington's Response
Whether that will be good enough to convince our elected - and appointed - policy makers in Sodom-on-the-Potomac remains to be seen.

They'll say that semiconductors fit comfortably and cheaply into the belly of an airplane, and that in this increasingly connected world, it doesn't really matter where you make such high value products.

They'll say that semiconductor fabrication demands large quantities of clean water - a resource in shrinking supply in China.

They'll point out that there is no competitive challenge to American dominance of the microprocessor industry from China or from Europe to justify the move.

And that's before they dive into issues of national security, offshoring American jobs, and support of a country with a political system a lot of Capitol Hill's denizens find objectionable.

Intel has a fight ahead of them. But I'm betting on the boys (and girls) from San Jose.

Source: Inside the Intel China Fab Debate