Why Intel built in the U.S.

noreply@blogger.com (Jim Knowlton) — Fri, 29 Oct 2010 03:29:00 +0000

Gerard Cachon, Management Professor and author of "Matching Supply with Demand", has some thoughts about why Intel is investing billions to build chip facilities in the U.S. (specifically Arizona and Oregon) rather than building them overseas.

His thesis is that it is not about:

cost: it would actually be cheaper to build overseas
"made in america": there is really no goodwill benefit for a chip maker (unlike clothing for instance)
transportation cost: there is not much in the way of transportation cost (unlike automobiles)

Cachon indicates it is all about production yield:

The issue is production yield – when you first start making chips, some of them, maybe even most of them, don’t work. The trick to make an investment in capacity pay off is to improve yields as fast as possible. And yields don’t improve because of better equipment, but rather because the equipment is used more effectively – engineers and line workers need to find out what particular recipe generates the best yield. Thus, improving yields requires intelligent experimentation, i.e., a skilled workforce. It follows that Intel must believe that a U.S. workforce can improve yields faster than an overseas workforce, fast enough to justify the additional $1 billion in cost. It will be interesting to see how long that U.S. advantage can last.

U of Oregon Economist on pre-existing conditions restrictions

noreply@blogger.com (Jim Knowlton) — Thu, 28 Oct 2010 19:36:00 +0000

Mark Thoma, an economist and Professor of Economics at the University of Oregon, discusses the impact of attempts by Democrats to eliminate the ability of insurance companies to screen for pre-existing conditions:

If you prohibit insurance companies from screening based on pre-existing conditions then people can just wait until they are sick to enroll which raises costs, and thus premiums for everyone.

This seems to make sense to me. Why would I buy a private policy when I’m well? I can just wait, and then buy “coverage”, which is really just buying a discount on services I already know I need.

Portland Business Review

Why Intel built in the U.S.

U of Oregon Economist on pre-existing conditions restrictions