Intel set to build $400m testing plant in India

Intel plans to build a testing and packaging facility in India - capitalising on a growing local market and inexpensive labour, according to one government official.

The company will invest approximately $400m in building the facility, which is likely to be located near Bangalore or Chennai, India's Communications Minister Dayanidhi Maran told Reuters. The deal will be announced in a month, according to the news report.

On Thursday, the Communications Ministry issued a press release stating that Maran handed a letter from India's Prime Minister Manmohan Singh to Intel chairman Craig Barrett outlining the benefits of building in India. Maran was on a five-day swing in the United States. At that time, though, the deal was only a possibility; the purported benefits outlined in the letter would accrue "in the event of" Intel's decision to build in India.

Intel declined to comment, but a spokesman said: "We are always looking at different places."

India is one of the world's fastest-growing PC markets and, by extension, one of Intel's fastest-growing geographies. By putting a testing and assembly plant in India, the chips can reach local PC manufacturers much quicker. Intel already has a chip-design centre in India that is working on a server chip.

Testing and assembly plants are facilities to which manufactured processors, chipsets and other chips are sent, tested, placed into packages and shipped to PC makers or distributors.

Intel manufactures its chips in plants located in Ireland, Israel and the United States, stable countries with fairly extensive electrical and utility systems - key factors chip companies examine in determining where to build a semiconductor fabrication facility or fab. (Local tax breaks are the other big factor.) Because most fab operations are controlled by robots, low labour costs are typically a minor consideration in this decision.

By contrast, labour costs are a greater consideration in testing and assembly facilities, which are more low-tech. As a result, Intel has located most of these in developing nations such as China, Costa Rica and Malaysia among others.

Testing and assembly facilities also cost less than fabs, which can cost $3bn to build.

Indian officials had lobbied Intel to build a fab in India. The country is also trying to woo more hardware manufacturers to build in India, putting the nation in competition with China and Taiwan.

No major manufacturer has a fab in the country, although a Korean entrepreneur has laid plans to create a foundry in Hyderabad, according to sources. To help build India's chip-manufacturing industry, the Indian Institute of Technology in Bombay has created course curriculum around semiconductor design that it is currently trying to port to other universities, according to Sunil Sherlekar, the head of the embedded-systems group at Tata Consultancy Services.

Michael Kanellos writes for CNET News.com