IBM's new fab is absolutely fabulous

Driving around the dreary, identical buildings on IBM’s campus in Fishkill, N.Y., you’d never imagine that world-changing work is being done there. Hidden inside one of those buildings is IBM’s new 140,000 square-foot chip-fabrication facility. The fab gleams like a diamond in a gravel bed.

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IBM claims that its fab is the most advanced facility of its kind. It cost $2.5 billion to build and it brings together state-of-the-art equipment from dozens of vendors. It runs like clockwork. Literally. The only thing humans have to do is maintain the machines. Every step of production is completely automated. The machines are airtight. The huge silicon wafers are never exposed to the plant’s air. Even the magazines that carry the wafers around are hermetically sealed.

Honestly, I can’t convey the awe I felt when I toured the facility. It looked like a sci-fi movie set, or an artist’s animated mock-up of how chips might be made in 20 years. But as impressed as I was watching the robotic carts gliding on tracks overhead and platters spinning inside huge machines, I looked around the joint and saw money. Not the money IBM spent, although that sum is dizzying. I saw all the money this fab will make when it’s completely operational. IBM is building the Death Star of the semiconductor industry.

IBM took advantage of economic conditions such as low interest rates, slowed-down R&D by competitors, and, my personal favorite, market consolidation. Chip prices have spiraled downward with no bottom in sight, costing Asian chipmakers their profit margins and cost advantages. The Northeast has gotten the worst of the recession; its economy was in lousy shape before the collapse. The genius of IBM’s strategy is that in this economy, it is smarter to manufacture chips in the States than to farm them out. As expensive as the Fishkill fab was to build, its full automation means it will cost a pittance to run compared to the operating costs suffered by competitors.

From the fab, IBM gains independence from other suppliers. It gains the ability to use 300mm wafers that yield 2.5 times more chips than standard 200mm wafers. That means IBM can choose to drive its prices down or its profits up, depending on market conditions. And IBM has something to sell that lots of companies want. Companies including AMD and Apple, for starters. Our tour guide confided that the PowerPC 970 chip (Apple’s G5) is not yet in production in Fishkill, but it takes no time at all to get a new chip into the line.

I have to confess that the scope of IBM’s project, its willingness to share its capabilities with others,  and IBM’s commitment to build its plant in the United States gave me a sense of pride. Except for a few well-run stalwarts such as Texas Instruments and Intel, technology manufacturing has all but left the country (for more on the competitive landscape in chip manufacturing, see “Intel or a Competitor Inside?”).

Whether IBM’s fab knocks out weak competitors or makes them mad enough to try to outdo Big Blue, it’s for the best. I can’t calculate how much growth this investment will bring to the desperate economy of New York and the limping economy of the whole country. Yes, the fab is a strategic move for IBM, and I concede that profit may be the only motive behind its creation.

But that is exactly what the economy and the gloomy IT market need.