Transcript Testimony of Paul Otellini

Impact of Taxes on U.S. Semiconductor
Company Decisions
Paul S. Otellini
President and Chief Operating Officer
Intel Corporation
March 31, 2005
Intel Snapshot
• Founded in 1968
• World’s Largest Semiconductor Company
• ~75% of the company’s $34 billion in sales are
outside the U.S.
• 80,000 employees; 60% in U.S.
• 12 of 16 factories in the U.S.
• Semiconductor manufacturing is
– R&D-intensive
+
– Capital-intensive
BOTH HAVE TAX
IMPLICATIONS
U.S. Competitiveness
• Research and the location of production facilities
critically affect U.S. competitiveness
• Especially as the U.S. becomes increasingly a
knowledge-based economy
Intel R & D
~ 80% in U.S.
R&D Tax Credit
• R&D Tax Credit has never been permanent
• R&D planning demands a long-term view
• Short-term extensions and lapses dilute the
incentive value of this credit
• Permanent R&D Tax Credit is long overdue
Intel Capital Expenditures
~ 70% in U.S.
PROBLEM: It costs $1 billion more
to build and operate a chip factory
in the U.S. than outside…
the biggest factor is taxes.
Wafer FAB Cost Model:
Key Assumptions & Drivers
Percentage of 10 year NPC
• Cost model compares alternatives
based on a 10 year NPC
– Production starting in year 3
–
Tax
80%
Ramp with “current generation” technology
products and transition to next gen products
after 5 years
Tax Benefit
Capital Grant
Labor Benefit
Op Costs
Op Costs
60%
Materials
Materials
Labor
• What factors drive analysis ?
Labor
– Cost differences driven by tax
treatment, capital grants, other local
factors
–
100%
40%
20%
Capital
Capital
Other local factors: utilities, labor, logistics
0%
US
Int’l
Conceptual 300mm FAB 10yr NPC
Int’l
$5.6B-$6.1B
US
$6.7B-$6.8B
Comparative Taxes/Incentives
• 35% corporate tax rate
• Various state-level incentives
ISRAEL
• Up to 20% capital grant
• 10% tax rate – 2-year tax holiday
CHINA
• 5-year tax holiday
• After holiday, ½ normal rate for next 5 years
MALAYSIA 10-year tax holiday
U.S.
IRELAND
12.5% corporate tax rate
Two thirds of new 300mm Fabs under
construction, equipping, or in production are in Asia
SE Asia
9%
S. Korea
8%
China
5%
Taiwan
33%
Japan
11%
Europe
14%
U.S.
20%
Source: Strategic Marketing Associates, May 2004
Potential Gap-Closers
•
•
•
•
Rate Reduction
Full expensing of factory in year one
Investment Tax Credit
Others? Combinations?
These solutions could be targeted
to selected industries or broad-based