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The Wrong Kind of ‘Intel Effect’

The Wrong Kind of ‘Intel Effect’

The decline in Intel's energy usage and its impact on PNM's earnings is just one effect the ongoing downsizing of the Rio Rancho plant is having, and will have.

BY DENNIS DOMRZALSKI

In the 1980s and 1990s, Albuquerque area political and business leaders talked about a hoped for “Intel effect,” where other high-tech and computer-related companies would set up shop in the area because of Intel’s presence in Rio Rancho.

That never really happened, and now, another, but unwanted, “Intel effect” is occurring in the area as the computer chip maker downsizes its Rio Rancho plant. The highest profile causality of it is PNM Resources, which on April 29 said its first quarter earnings had dropped by 27 percent, partly because of reduced energy use by Intel’s Rio Rancho factory.

The electric utility’s industrial load dropped by 7.2 percent during the quarter, and a lot of that was caused by Intel’s declining use. PNM’s earnings for the quarter dropped to $10.5 million, down from $14.3 million in the first quarter of 2015.

“In this group [industrial customers], Intel is a large customer, and they continue to show a decline on a year-over-year basis,” PNM CFO Chuck Eldred said during the April 29 conference call with investors. “As many of you are aware, they announced a major restructuring of their business during their first quarter earnings call. We are carefully monitoring the situation. We have received no communication from Intel that they plan to close this site.”

Intel announced last month that it was cutting 12,000 jobs, or 11 percent of its global workforce over the next year as it shifts away from computer chips to chips for mobile devices like smartphones and tablets.

Intel hasn’t said how many jobs, if any, would be cut at the Rio Rancho facility. But the past decade has not been good for the plant. The factory employed about 5,500 in the mid-2000s. That had dropped to 2,300 in the beginning of 2015, and to 1,900 at the beginning of this year. And, the facility hasn’t had a major investment from Intel since 2009.

The decline in Intel’s energy usage and its impact on PNM’s earnings is just one effect the ongoing downsizing of the Rio Rancho plant is having, and will have.

The jobs at Intel are considered economic base jobs, which basically means that the product they produce is exported and sold elsewhere, which means they bring outside money into the area. The only way an economy can grow is through economic base jobs that bring in new money.

It’s estimated that every job at Intel creates 1.5 to two service sector jobs — things like restaurant servers, car mechanics and retail clerks. Each job that’s eliminated at Intel leads to a loss of up to two jobs in the service sector.

There is no real way to determine how many service sector jobs have been lost because of the job cuts at the Rio Rancho facility over the years. And there has been no real way to gauge the downsizing’s effect on other businesses. And, because Intel is secretive about its operations, there hasn’t been a way to tell what has really been going on at the Rio Rancho plant.

But PNM’s earnings call did shine some light on the situation. The fact that Intel’s power usage has been declining means they’re producing fewer chips at the plant.

It looks like, in the future, PNM might be the best source of information about Intel.

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Dennis Domrzalski is managing editor of ABQ Free Press. Reach him at dennis@freeabq.com.

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Dennis Domrzalski is managing editor of ABQ Free Press. Reach him at dennis@freeabq.com.