The Wall Street Journal reported on February 11, 2009 that Intel will be spending about $7 billion to upgrade its U.S. manufacturing facilities in the next two years.
They are smarter than the companies that are retrenching from capital expenditures at this time.
Here’s why: They will now get a much better value for their capital construction dollars than they would have received over the past three years. Construction is slow enough that prices have dropped tremendously. A price decrease in bidding of 25% is not out of line from early 2008 to now. The lower construction volume also means they get better material pricing. Common construction commodities are less expensive now than they were in 2007. The lower volume also translates to lower employment. They can get the cream of the crop in manpower for craft and staff requirements from the construction companies. Fewer capital projects leads to increased levels of competition. Increased competition brings smaller profit margins.
Yep, Intel is a smart company to embark on this program.
Oh, by the way…
There are many other factors that influence the amount of profit in a construction contract. Risk, contract types, project conditions and contractor types are other significant factors.
