4 Reasons Intel’s ‘Silicon Heartland’ Move Matters To CEOs Everywhere

Intel’s announcement Friday that it will spend $20 billion to build two microchip-fabrication plants in Ohio would be front-page news at almost any time. The location—on a 1,000-acre site on the outskirts of Columbus, which will act as a hub to research, develop and manufacture the company’s most advanced chips, will make it the world’s biggest silicon-manufacturing site.

But coming now, amid increasing instability in the post-World War II global order, the announcement portends even broader implications: for the future of manufacturing in this country; for the move by American companies to decouple themselves from Asian supply chains; for the increasing geopolitical wrangling between China and the United States; and for economic development in the nation’s industrial heartland.

All of which makes it a bellwether moment for any CEO—not just manufacturing CEOs— thinking about strategy for the decade ahead.

Intel CEO Pat Gelsinger and others are touting the project as critical to help U.S. auto manufacturers and others finally resolve the microchip shortage that developed during covid and has been at the core of the colossal supply-chain problems that have wracked American output and the entire economy since over a year ago.

“When you think of the auto industry, you’re going to see us have more to say with the auto-industry leaders as they are looking to us and others to build up and satisfy their demands,” Gelsinger said on CNBC Friday. “Because as we’ve seen, the economic impact of not having enough chips to meet the growth of that [demand] has been inflationary and job-impacting, so this is critical to support that industry, which is already very present in the heartland, and now the silicon heartland.”

Indeed, American car makers saw sales sliced last year because they had allowed their chip orders from plants in Taiwan and elsewhere to slide to makers of consumer electronics and other goods that were popular during the pandemic – and they simply ran out of new vehicles to sell. The disruption was so great that, at least for last year, Toyota actually usurped General Motors’ decades-long position as America’s biggest car seller.

For at least a year, the automakers have been struggling to get their chip consignments back up as Asian manufacturers fight through covid shutdowns and respond to reallocation demands from car companies. The situation has been improving incrementally in recent weeks. But U.S. auto executives expect the chip shortage to be a significant affliction at least into late this year and probably beyond.

But the Intel announcement doesn’t help the auto industry in the short term or really for the next four to five years. So beyond the prospect of providing long-term supply-chain resilience because automakers in the Midwest, Mid-South and South can get their chips from up the road in Ohio instead of from Taiwan or Malaysia, Intel’s announcement has four-fold importance:

For American manufacturing in general:

For Intel to commit to building its biggest plant in the American heartland represents a huge signal for the future of manufacturing in this country.

Gelsinger has been vocal about the need for the United States to host more chip factories, as well as Europe, after decades of precipitous decline in chip-making in those two regions. He has said that such a rebalancing of production is necessary to reverse its increasing concentration in East Asia.

President Biden, meanwhile, wants Congress to approve $52 billion to expand U.S. semiconductor manufacturing under a bipartisan U.S. Innovation and Competition Act. Intel didn’t wait for the promise of federal cash to make its announcement, but such aid certainly could promote further chip-making investments in this country.

But the impact of this announcement will include ripples far beyond chipmaking. Building a new microchip plant is one of the most significant capital investments any manufacturer can make. The fact that Intel is willing to do that, in today’s uncertain economic environment, is a commitment to American manufacturing that likely will go a long way in persuading others that more domestic factories are worthwhile.

For supply-chain restructuring:

U.S. manufacturing CEOs have been moving for several months now, each in their own ways, to attempt not only to build multi-sourcing resilience into their supply chains but also to cut their dependence on Asian sources where they can. Intel’s announcement brings this impulse to its full flowering.

Gelsinger explicitly spelled out the company’s desire to restore its manufacturing prowess in chipmaking – now dominated by Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. – and to do it with a huge new investment in the United States. In the copycat business of manufacturing sourcing, this is likely to have a huge impact.

For geopolitics:

To the extent that securing its own huge new supply of microchips gives the United States a strategic boost in its relationship with China, Intel’s move could have wide-ranging geopolitical implications. Gelsinger has cited increasing tensions between the two superpowers. And China’s threatening actions specifically have included saber-rattling against Taiwan, a crucial source of microchips for global markets.

Even beyond that, Intel’s investment could become another milestone in the deterioration of the post-World War II economic order and the globalization of production arrangements that have defined the global system for more than a half-century.

For the heartland:

Columbus and central Ohio have been known for features such as Ohio State University, legacy and startup digital insurance companies, and a leading tech-research institution in Battelle Memorial Institute – but now the state capital also will be at the heart of what Gelsinger called a “silicon heartland.”

This is a huge development for a central United States region that for decades has seen the economic fruits of the big-tech explosion mostly go to increasingly dominating coastal concentrations including Silicon Valley, the New York-Boston corridor and the Research Triangle of North Carolina.

Fabricating chips in the heartland makes sense for a number of reasons, including an ample supply of fresh water, geologic stability, its logistical position in the center of the country, its proximity to automakers and other major manufacturing operations such as appliances in Kentucky and industrial equipment in Missouri. Contrast some of these innate advantages of flyover country to those of places such as Arizona which already have been enjoying big investments in microchip companies.

Meanwhile, the creation of a “silicon heartland” in Ohio would nicely complement what promises to be a vast expansion of automotive manufacturing in the heartland through investments in electric-vehicle and battery plants in Michigan, Tennessee, Kentucky and elsewhere by General Motors, Ford, Stellantis, Toyota and others.