Intel head outlines NZ's best way ahead in Asia

By PETER GRIFFIN in Sydney

Intel, the world's largest computer chip maker, is urging New Zealand and Australia to pour more money into research and development and put their good education systems to use in becoming tech exporters to Asia.

Intel chief executive Craig Barrett has just been on a whirlwind tour of Asia - now Intel's biggest market - visiting countries including Malaysia, the Philippines and Vietnam.

Making a presentation on "connecting Australia" in Sydney yesterday, Barrett poured cold water on rumours that he might be in discussions with the Australian Government about locating a chip fabrication plant in the country - a move that would potentially generate thousands of jobs.

Barrett said he would meet Government officials in Melbourne today, but Intel's investment plans for Australia would not be a topic of discussion.

Lower labour rates and incentives from the Asian Governments meant New Zealand and Australia would be passed over in the search for new manufacturing centres.

"There are several billion people in mainland Asia who are very adept at manufacturing and the Governments are very aggressive about attracting manufacturers," Barrett told the Herald. "It's going to be difficult for the likes of New Zealand to compete with that."

Australia was spending around 0.6 per cent of its gross domestic product on research and development, a figure that had to increase, he said. In comparison, the US spent around 2 per cent.

Broadband penetration in the region was also low, which could hold back the development of high-tech labs.

But Barrett was happy with the progress of Intel's Dialogic lab based in Auckland, which employs around 60 people.

"The opportunity [for New Zealand] lies in attracting more value-added, engineering-level investment. Build off your strong educational system, and create value at a higher level and correspondingly get paid for it," Barrett said.

Weak economic conditions had impacted on the growth of Intel Capital, the company's multibillion-dollar investment arm.

Intel Capital had made eight investments in Australia across the telecoms equipment, software and semiconductor sectors.

Around 120 investments had been made in Asia, but Intel only ever entered its investments as a minority stakeholder and a dry-up of venture capital meant Intel Capital was investing just a third of what it was two years ago.

"Our investment rate is down, that's because most of our investment partners have slowed their investment rates substantially."

Intel was staying true to its policy of spending its way through the current IT recession, the worst Barrett had seen in more than 30 years working in the industry.

"We've fine-tuned our capital spending because volume hasn't materialised. But I see them as very minor adjustments," said Barrett, 63.

Intel's research and development budget target at the start of the year was US$4.1 billion ($8.7 billion) - more than the research and development spend of Australia for an entire year. That amount had been trimmed by just US$100 million.

Capital spending overall was down between 5 and 10 per cent.

Barrett said Intel was involved in creating the second generation of Xbox and that a move into the chip business would be a difficult move for Microsoft.

"I can tell them all the bad parts of this business, just as Bill Gates keeps telling me all the bad parts of the software business."

* Peter Griffin flew to Sydney as a guest of Intel.