NYT20020731.0371 2002-07-31 23:38 A4917 &x1f; taf-z u f BC-IBM-CHIPS-1STLD-WRITE 07-31 0925 BC-IBM-CHIPS-1STLD-WRITETHRU-(TRIM)-NYT IBM OPENS $2.5 BILLION CHIP PLANT IN UPSTATE NEW YORK (SUBS 1st graf with CORRECTION. No other changes.) By STEVE LOHR c.2002 New York Times News Service EAST FISHKILL, N.Y. -- IBM opened a sprawling and sophisticated semiconductor factory here on Wednesday that cost more than $2.5 billion to build and equip, the largest single capital investment the company has ever made. The factory, which opens as the computer chip business is in a slump, is a costly and risky move for IBM. But it is also an expression of confidence by the company that it can remain a technology leader in the highly competitive global semiconductor industry, and a commitment that the best place to execute that strategy is in upstate New York. IBM is an exception among computer makers in that it still invests heavily in research to advance the design, manufacture and materials used in semiconductor chips. It is spending more than $500 million a year on semiconductor research and development. The factory will produce a wide range of specialized semiconductors used in everything from the largest mainframe computers to cell phones and video-game consoles. The new plant is part of IBM's push to gain a strong lead in chip-making beyond the personal computer business, where Intel and East Asian chip producers hold the advantage. "The core of our strategy is to lead in technology and attack the high-performance segments of the market," said John Kelly, senior vice president in charge of IBM's technology group. An advantage to having the semiconductor fabricating factory here, Kelly explained, was that it was very close to its research laboratories in nearby Westchester County, N.Y. To stay ahead in advanced chip technology, he said, moving innovations out of the labs and into the factory as fast as possible is crucial. "What we call the lab-to-fab time should be as close to zero as possible," Kelly said. "If our strategy were anything but to be on the leading edge, we'd have put the plant in Asia." The new factory, which will begin normal production early next year, will employ about 1,000 people. (BEGIN OPTIONAL TRIM) In remarks during a ribbon-cutting ceremony here on Wednesday, Gov. George E. Pataki said he expected the facility to generate thousands more jobs in the Hudson Valley area for contractors and suppliers catering to the factory. He praised IBM for being "a critical partner in our economic development efforts" in New York state. In a brief speech, Samuel J. Palmisano, IBM's chief executive, emphasized that it was important to make long-term investments despite the current slump in the technology business. "To play to win in technology, you innovate and you lead," he said. But manufacturing technology products is a costly and cyclical business. In June, IBM announced that it was taking a charge of more than $2 billion against earnings. The largest single reasons for the charge were the cost of getting out of the business of manufacturing hard disks for storage, which it sold to Hitachi, and closing down some of its older semiconductor operations. But Kelly said the demand for advanced chips, like those produced at IBM's facility in Burlington, Vt., is strong. "I need more capacity in that end of the market," he said, "and this is factory is critical to meeting that growing demand." If IBM has miscalculated the demand, it will suffer badly as both the high operating costs and depreciation on the huge capital investment for the East Fishkill factory drag down earnings. But industry analysts said the plant should be insulated from a falloff in one or a few segments of the semiconductor market. (END OPTIONAL TRIM) The factory is highly automated and designed to shift flexibly to produce many different kinds of chips to suit demand. "The diversity is the big difference with this plant," said Richard Doherty, president of Envisioneering, a research firm. "It gives IBM the capability to make so many different kinds of custom chips, and the world is going to custom chips." The 140,000-square-foot plant is a testament to advanced manufacturing technology. The 300-millimeter silicon wafers -- about the size of a standard pizza -- are shuttled around the facility in enclosed plastic pods, which ride on overhead tracks. They drop down from wires automatically into machines, sheathed in stainless steel and glass, for each stage of processing and fabrication. Throughout the 500 processing steps, which typically last 20 days, the wafers are not touched by human hands. The circuits etched into the chips are less than one thousandth the width of a human hair. Human operators are there to monitor the systems, catch errors and fine-tune the production process for maximum efficiency. Because each of the hundreds of processing machines is self-enclosed, and essentially airtight, the uniforms operators wear are less constricting than in the previous generation of chip plants, which looked like space suits. The operators at the East Fishkill factory wear light nylon uniforms, light blue shoe coverings and translucent hair nets made of paper. They look more like workers in a bakery. Yes, said Richard Brilla, director of the new facility, "but the donuts are a lot more costly here." Each wafer, holding hundreds of chips, is worth $6,000 to $10,000 apiece, depending on what insulation, circuitry and materials are used. NYT-07-31-02 2338EDT