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Why Intel Will Leave N.M. Sooner, Not Later

Why Intel Will Leave N.M. Sooner, Not Later

The computer chipmaker hasn’t made a major investment in its Rio Rancho plant since 2009, and while employment at the facility has declined by more than half here since the mid-2000s.

Rio Rancho’s and Intel’s Love-hate Relationship

BY DENNIS DOMRZALSKI

Heading for the exits

Intel’s departure could accelerate a trend in recent years that has seen more people leave New Mexico than have come here. In the year that ended July 1, 2014, the state had a net outmigration of 11,480 people, according to the U.S. Census Bureau. In the 12 months that ended July 1, 2013, the Albuquerque area saw a net outmigration of 1,987. The loss of 2,300 Intel employees, plus family members, would see those numbers spike.

Consensus among Albuquerque area business and economic development leaders is that Intel Corp. has soured on New Mexico.

The computer chipmaker hasn’t made a major investment in its Rio Rancho plant since 2009, and while employment at the facility has declined by more than half here since the mid-2000s, newer Intel facilities in Chandler, Ariz., now employ more than 11,000 people.

There actually are three Intel facilities in Chandler. Two are operating and one sits empty, ready to be filled with equipment that Intel needs to produce a next-generation product – once the company identifies what that product will be, an industry analyst said.

By comparison, the Rio Rancho facility is old and unlikely to be able to accommodate the next generation of chipmaking equipment. But the estrangement between Intel goes beyond the aging plant and has its roots in a mix of economics, personal biases, lack of mutual respect and, at times, just plain bad blood.

ABQ Free Press interviewed more than a dozen business and economic development leaders, who worked with, or for, Intel over the years. Their consensus is that the state and the community never treated Intel as the valued partner like it should have and that the state has had an anti-business, anti-wealth attitude that gave the company a bad feeling.

“There was a key period for over a decade and a half where New Mexico and the city and the county, from a regulatory and tax standpoint, did not protect the asset and did not act like a partner needed for that plant to stay on the cutting edge,” said local economic development consultant Mark Lautman.

Intel’s Rio Rancho facility, built in 1980, has been upgraded several times but not since 2009. Local business leaders fear we’re within a year or two of seeing Intel depart New Mexico completely.

Intel’s Rio Rancho facility, built in 1980, has been upgraded several times but not since 2009. Local business leaders fear we’re within a year or two of seeing Intel depart New Mexico completely.

In addition, once Intel did up its ante up and expand its facility here, New Mexico never properly capitalized on Intel’s presence by bringing in similar types of businesses to build a high-tech culture. “The Intel Effect” is what local economic development officials optimistically called the phenomenon, and it never really happened.

The presence of other high-tech chip-related companies might have diminished the sense among Intel executives assigned to Rio Rancho that they were taking on a hardship post – as far away culturally from the company’s Santa Clara, Calif., headquarters as a posting to Malaysia, Vietnam or China.

What goes around comes around

Continual attacks on the company by residents of Corrales over air quality and water issues hurt the Rio Rancho facility’s reputation among Intel executives who came through here. Many of those now hold top positions within the company, local experts said.

Jon Barela, secretary of the New Mexico Economic Development Department under Gov. Susana Martinez and a former Intel executive, cited a situation many years ago where it took “three years and two administrations [for Intel] to get a minor-source air permit” as an example of the state’s anti-business attitude.

“There are 25 people out there who will do anything they can to drive Intel away,” said one business expert who spoke on the condition of anonymity.  “The shadows of Intel’s stacks shade their tomato plants.”

ABQ Free Press talked to two of those “tomato growers.”

Continual attacks on the company by residents of Corrales over air quality and water issues hurt the Rio Rancho facility’s reputation among Intel executives who came through here

“I say, ‘Don’t let the door hit your ass,’” said Intel opponent Barbara Rockwell, who wrote a book about Corrales’ struggles with the company, “Boiling Frogs: Intel vs. the Village.”

“If Intel were a person, it would be a sociopath. You can’t believe them; they lied to us. The return of clean air would be good,” said Rockwell, who now lives in Placitas.

In the plant’s early years, Corrales residents complained of odors from toxic chemicals that Intel uses to make its chips. It took about 20 years for the firm to raise the height of its emissions stacks, which alleviated the problem, Rockwell said.

‘I say, Don’t let the door hit your ass’ – Intel critic Barbara Rockwell

Corrales residents also have complained their water wells are being drawn down by Intel’s massive water use, which amounts to more than 1 billion gallons a year, Rockwell said.

Jeff Radford, owner of the Corrales Comment newspaper, said he believes many of his readers fighting to maintain the village’s rural and semirural character would be happy to see Intel go.

“Most people would be disappointed from the impact of jobs going away, but people who have been affected by emissions would be delighted,” Radford said.

Rockwell said, economically, Intel’s departure “would be a disaster for Rio Rancho.”

Intel’s departure would blow an $832 million hole in the area’s economy, including $390 million in lost wages and benefits

“It would turn into another Grants,” she said, referring to the crash of that town’s economy upon the departure of the uranium mining industry from western New Mexico.

A tale of two Intel cities

James Jimenez, a former Rio Rancho city manager, believes the facility’s downsizing and potential shuttering is due, in part, to Intel’s mandate that its “fabs” – in chipmaker speak, a “fab” is a fabrication facility – compete for new projects. The facility here, hampered by old equipment, is simply off its game.

“For a while, the Rio Rancho plant was good at it, but for the past eight years they have not been effective at competing,” Jimenez said.

Daymon Ely, a former Sandoval County Commission chairman, said that Intel officials gave him the impression that they never really liked New Mexico.

‘Being a large presence in our communities means we have to maintain our commitment to those communities’ – Intel spokeswoman Rachel Sutherland

“For whatever reason, their employees did not like coming to New Mexico. It was not a desirable place because it didn’t have a lot of the big-city stuff like Phoenix had, or places in California,” Ely said.

That was made clear, Ely said, when Intel officials flatly told him they weren’t interested in exploring other sites in Rio Rancho to quell the criticisms coming from Corrales. The Chandler plant, which opened the same year as the Rio Rancho facility, has faced nothing like the criticism Intel endured here, several economic-development officials told ABQ Free Press.

And then there are simply the intangibles, the signs of dysfunction that builds as a relationship goes sour.

Tommy Hughes, a former Sandoval County bond attorney who negotiated industrial revenue bond deals between the county and Intel, just doesn’t like Intel executives.

“When somebody from Intel’s mouth is moving, they are usually lying,” Hughes said. He cited negotiations in 1995 when Intel said it would provide Rio Rancho with a high school that never materialized.

Then-Sandoval County Commissioner Joe Lang was pushing Intel to pay to build the city a high school, Hughes recalled. At the time, the Intel plant manager “kept telling everyone they were going to ‘provide’ a high school. Joe kept saying, ‘Oh boy, they are going to give us a high school!’” Hughes said.

“It dawned on me that ‘provide’ and ‘give’ were two different words. Intel said they would build up to a $30 million facility and then lease it to them [Rio Rancho] at market rate, and then in the future they would get to buy it.”

Intel later relented and in 1997, with no strings attached, gave what is now Rio Rancho High School to the city, but Hughes said he never trusted the company again.

It’s the elephant in the room that many business and political leaders wish they didn’t have to think or talk about because it’s so painful.

But there is a growing consensus that the issue has to be addressed. People are starting to ask: What happens to the Albuquerque Metro area if Intel Corp. – the world’s largest computer chip manufacturer that has employed thousands upon thousands of New Mexicans since 1980 – shutters its Rio Rancho plant and leaves?

In terms of numbers, the answer is simple.

Intel’s departure would blow an $832 million hole in the area’s economy, including $390 million in lost wages and benefits, $68 million in lost contracts to vendors, and $4 million in grants to schools and nonprofits.

‘How do we negotiate a goodbye kiss with Intel should they leave?’ – economic development consultant Mark Lautman

It also would mean the loss of at least 7,500 jobs. That includes the 2,300 people who now work at Intel, plus the thousands of people who work for the firm’s contractors here. That number also includes people who work in service-sector jobs whose businesses rely on Intel workers to spend money with them: retail clerks, restaurant workers, florists and car mechanics.

Those 2,300 Intel jobs represent 14 percent of the four-county metro area’s manufacturing base and 2 percent of the manufacturing base of the entire state. Their loss would further stagger a sector that has been losing jobs for more than a decade.

Could Intel really leave Rio Rancho after 35 years? Yes and no, depending on who you talk to, but the needle appears to point to yes.

‘My communications with them in 2004 led me and Daymon [Ely] to believe that they would be departing soon after 2015’ – Sandoval County bond attorney Tommy Hughes

Intel spokeswoman Rachel Sutherland wouldn’t comment on the question of when or whether Intel would leave New Mexico. “Being a large presence in our communities means we have to maintain our commitment to those communities and be a positive force for the community,” she said.

A telling sign of Intel’s intentions in Rio Rancho is found in how much of its industrial bonding authority Intel has used in Rio Rancho in the past 10 years. The 2004 IRB deal authorized Intel to sell up to $16 billion in tax-abatement bonds to finance upgrades and expansions. As of April 2014, the company had used only $6 billion of that, said Sandoval County spokesman Sidney Hill. For the company’s observers, that suggests Intel has closed its wallet here.

A growing pessimism

Talk of the plant’s imminent shuttering was fueled by Intel Rio Rancho General Manager Kirby Jefferson, who in the spring of 2014 stunned local business leaders when he announced at an economic development breakfast meeting that the Rio Rancho facility had a two-year run on the chips it’s currently making.

‘There are 25 people out there who will do anything they can to drive Intel away’ – a business expert who spoke on the condition of anonymity

After that, the factory would have to land a big project for the facility to grow. Jefferson also warned the audience that day that no matter how many tax breaks or other incentives the state offers, Intel operates and competes in a global economy.

That sent shockwaves through the local business community, and speculation began about whether, or when, the plant would close.

The Rio Rancho plant has failed to win several rounds of upgrades, a situation that some say has doomed it. The last upgrade to the plant was in 2009 when Intel spent $2.5 billion on the facility. Employment at the factory peaked at 5,300 in 2005 and has since been declining. As of Dec. 31, Intel had 2,300 employees in Rio Rancho, Sutherland said.

Intel’s departure would damage the Metro area’s reputation as a place that big companies find attractive and taint New Mexico’s already spotty reputation as a place in which to locate or expand.

‘Their employees did not like coming to New Mexico. It was not a desirable place because it didn’t have a lot of the big-city stuff like Phoenix had, or places in California’ – former Sandoval County Commission Chairman Daymon Ely

“We’ve had a lot of companies in the Silicon Valley and elsewhere [consider Rio Rancho] because Intel was here. If New Mexico was good enough for Intel, a lot of places would look at us,” said one person who used to work with Intel and who didn’t want to be identified. “The same thing in reverse would happen if Intel left.”

An old fab

Semiconductor industry analyst Dean McCarron of Mercury Research in Cave Creek, Ariz., said there are a number of reasons that things don’t look good for the Rio Rancho plant. The Rio Rancho facility is old and is making older products that soon will be obsolete.

The drop in PC sales has hurt Intel’s bottom line. The firm recently announced a $900 million drop in its revenue forecast for the first quarter.

As Intel’s Rio Rancho facility declines, Intel is polishing the door knobs at a brand-new, $1.7 billion factory in Chandler, Ariz., that now sits empty. Any future expansion or upgrades likely would happen there or at other Intel sites, McCarron said.

“I’m not portraying it as all hope is lost, but it is not a promising picture,” McCarron said. “It’s unlikely that Albuquerque would get retrofitted.”

Others suspected 10 years ago that Intel’s time in New Mexico was limited.

Tommy Hughes, a former Sandoval County bond attorney who worked on the county’s $16 billion industrial bond deal for Intel in 2004, said he thinks the company will be leaving soon, based on things Intel executives said to him and to then-Sandoval County Commission Chairman Daymon Ely, at the time of the bond deal.

“My communications with them in 2004 led me and Daymon to believe that they would be departing soon after 2015,” Hughes said. “They were not going to make any more significant investments because of the taxation.”

Ely recalls having the same impression.

“I remember that I was talking to some Intel people about it [the company leaving], and at one point I had the strong sense that this was their last hurrah in New Mexico,” Ely recalled. “I asked them how long Intel was going to be here and they said, probably 2015.”

Not everyone believes Intel will leave.

Jon Barela, secretary of the New Mexico Economic Development Department, said he and department staffers meet with Intel executives on a monthly basis and that “all indications are that Intel is committed to staying in New Mexico.”

Planning for a post-Intel economy

While Barela and others believe Intel will stay, they said that the metro area has to re-engineer its economy to create a more robust, diversified private sector that actually exports goods and services.

 James Jimenez, a former Rio Rancho city manager, said the Albuquerque Metro area has to start planning for a dramatically different economy.

“The conversation needs to be around two things. One is a post-Intel metro economy, and the other is a flat scenario for federal spending,” Jimenez said. “For Rio Rancho, it is particularly problematic because those [Intel] employees live in Rio Rancho and what happens to them?”

Economic developer Mark Lautman, who helped build Rio Rancho’s economy in the 1980s and 1990s, agreed that the metro area must look beyond Intel. With its job force less than half of its high point, Intel already has “one foot out the door,” Lautman said.

“We are accelerating toward a post-Intel economy. [Intel] is shrinking, and we have to find secondary uses for the space. The most important thing we need to do now is to start researching what kind of economic-base activity could be conducted on the site, and how do we negotiate a goodbye kiss with Intel should they leave.”

Jami Grindatto, a former Intel executive who now is chairman and CEO of the Sandoval Economic Alliance (SEA), agreed and said diversification beyond the current triumvirate of oil and gas, the federal government and Intel is essential.

How to diversify

“There is no magic bullet; it is not going to happen in two years,” Grindatto said. “We’ve had a slow wakeup in the last few years.”

She and others have said the state and the metro area need to focus on recruiting companies that can bring “economic-base jobs” – defined as jobs in which 60 percent or more of goods or services are sold out of state and that bring outside money into the economy.

Grindatto sees four ingredients as a precursor to those jobs: infrastructure, marketing, sales and collaboration, and coordination between different economic development agencies.

SEA has set a goal of creating 1,000 economic-base jobs a year for the next 10 years, a target based on a study Lautman did for Sandoval County.

But others said the metro area as a whole has no integrated strategic economic development plan. There are individual efforts, including Albuquerque Mayor Richard Berry’s goal of making the city the entrepreneurship capital of the United States, and Innovate ABQ, an effort by the University of New Mexico and the city to redevelop a corridor along Central Avenue in Downtown Albuquerque into a high-tech, entrepreneurial hub.

 “We are waking up, and we are going to have to stick to our guns,” Grindatto said. “We have to think long term, even though things might get worse in the short term.”

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Albuquerque’s definitive alternative newspaper publishing an inquisitive, modern approach to the news and entertainment stories that matter most to New Mexicans. ABQ Free Press’ fresh voice speaks to insightful and involved professionals who care deeply about our community.

Latest posts by ABQ Free Press (see all)