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Originally published Monday, November 20, 2006 at 12:00 AM

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Intel chooses Vietnam for $1 billion investment

Intel could have selected any country to build its largest chip assembly and testing plant. But the world's biggest semiconductor company...

The Associated Press

HO CHI MINH CITY, Vietnam — Intel could have selected any country to build its largest chip assembly and testing plant. But the world's biggest semiconductor company decided to make the $1 billion investment in a relative newcomer to the high-tech game — Vietnam.

Intel announced earlier this month it would more than triple its initial investment to expand the planned factory in southern Ho Chi Minh City from 150,000 to 500,000 square feet. It is expected to begin operations in 2009 and could employ up to 4,000 workers.

Vietnam's first semiconductor facility represents the country's biggest single foreign investment. And Intel officials say the decision ultimately came down to Vietnam's people.

"The reasons we chose to invest here in Vietnam are evident," said Brian Krzanich, Intel's vice president and general manager for assembly and test. "A very vibrant population, an increasingly strengthened education system, a strong work force and a very forward-looking government."

Labor remains cheap in Vietnam, where education and self-improvement are rooted in the Confucian tradition and more than 60 percent of the population is younger than 30. Vietnam also has one of the world's fastest-growing economies and was recently invited to join the World Trade Organization.

Hanoi hosted the Asia-Pacific Economic Cooperation summit over the weekend, showing off the nation to world and corporate leaders.

The latest Intel news, which follows an initial announcement in February to invest $300 million in the factory, comes as Vietnam is working hard to persuade foreign companies to put their trust in a country many still equate with war and poverty.

It also is trying to overcome a reputation as one of Asia's worst violators of intellectual-property rights. Vietnam has the highest percentage of pirated software in Asia, with copies of Microsoft operating systems available on the street for a couple dollars.

While the country remains a staunch one-party system, the communist government is opening up and pushing for economic reforms that will lead to a market economy.

Vietnam's fledgling high-tech sector also got a boost in April when Microsoft Chairman Bill Gates visited and was treated like a rock star by technology students.

Vietnam is hoping Intel's investment will help build investor confidence and put the country on the path of other high-tech powerhouses like India.

"They [Intel officials] have built a partnership through four years of negotiations and have come to the point where they're very comfortable operating here, and they wouldn't be making this kind of investment if they weren't," said U.S. Ambassador Michael Marine.

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To sweeten the deal, Vietnam offered incentives. Intel will not pay corporate taxes for the first four years of operation and will enjoy a 50 percent tax break the following nine years, said Pham Chanh Truc, head of the high-tech park in Ho Chi Minh City.

After that, Intel will pay only 10 percent in taxes, compared with the normal 28 percent corporate rate. The incentives are offered to all businesses that invest in the site, Truc said.

Intel officials declined to discuss details of the deal.

Company spokesman Chuck Mulloy said the assembly and testing facility — which performs some of the final tasks including cutting the processed silicon wafers into chips and subjecting them to a battery of tests before being shipped to customers — will serve as a model for future Intel plants around the world.

Besides Vietnam, the company has assembly and testing plants in China, Malaysia, the Philippines and Costa Rica.

Mulloy said Intel wanted a presence in one of Asia's fastest-growing markets for PCs and other technology, and the company has long thought that investing in emerging economies like Vietnam will create more long-term demand for Intel products.

And while the work force was a key factor in Intel's decision, Vietnam's tax incentives and infrastructure investments also played a role, he said.

"This is a very positive development, which will help to boost information-technology industry in Vietnam in general and the software industry in particular," said Tran Doan Kim, administrative head of Vietnam Software Association, or Vinasa. "Vietnam's IT industry badly needs investment from a major foreign investor like Intel or Microsoft."

Roughly 20,000 engineers work for about 700 software companies in Vietnam, he said.

The Intel factory could finally end the country's status as a net importer of computer gear. Last year, computer- and electronic-equipment exports from Vietnam rose 34 percent to $1.44 billion, while imports of computers and electronics climbed 26.3 percent to $1.7 billion.

Nguyen Huu Le, a former Nortel Networks executive who returned to Vietnam to set up his own software company, is already doing outsourcing work for Nortel, Lucent Technologies and NTT Electronics.

Le has been in contact with Intel and hopes the new plant will help serve as a catalyst for further growth in information technology. He also thinks Vietnam's young, dynamic work force is key.

"This has been in the culture of Vietnam," Le said. "For as long as I can remember, before or even after the end of the war, we have always been a poorer country so the only way the young people can advance is by education."

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