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Why did Intel Pick Ohio to Build One of the World's Largest Semiconductor Factories?

It’s hardly news to the residents of central Ohio, where it has been splashed across the front pages for weeks, but Intel recently selected the city of New Albany, Ohio as its selected future home for a new $20 billion semiconductor chip factory, an investment Intel has framed as “the largest silicon manufacturing location on the planet”.

Intel’s thrust into Ohio is a strategic investment to grow what they are calling a “mega-fab little city”. Not only is the move designed to help Intel, which has fallen behind other tech companies in chip manufacturing, but it also reflects a national consensus that the US needs to produce more semiconductor chips domestically. Since 1990, the US’ share of global semiconductor chip manufacturing has fallen from 37% to 12% at the very time that the technologies that depend on these chips have exploded. Like other industries in which outsourcing was designed to cut costs, there have been unintended consequences, with many fretting that the US’ dependence on international production of this precious commodity leaves it vulnerable to the whims, tariffs, and monopolies of nations in southeast Asia.

Bringing some of those activities back to the midwestern United States feels like a win-win not only at easting such vulnerabilities, but in reigniting the very part of America that has been hurt most by the outsourcing of industry. In reality, it’s not quite such a simple story, as semiconductor chips require a complicated process of production, testing, packaging, and the like, and even for Intel several of the steps will continue to occur in Asia. Nevertheless, it’s a start, and one Ohio leaders are eager to herald as a generational moment.

New Albany was selected over 40 other prospective locations nationwide, a major win for Ohio, a state that for many decades has grown more slowly than the nation as a whole. Ohio’s national perception oscillates from rural and agricultural to a declining Rust Belt relic, so this infusion of critical big tech investment is a jolt of energy for the state’s proponents, and has left many of them preaching the possibilities of a new era for what Intel has termed America’s new “silicon heartland”.

While New Albany is a community of just 12,000 residents, it’s also a wealthy suburb of Columbus, which in contrast to the rest of Ohio has grown dynamically over the last few decades. Home to good schools and reasonable home prices, New Albany is the kind of “white picket fence” suburb that many see as a promising future destination in a post-pandemic world in which talented professionals with young families will have less tolerance for the expenses and inconveniences of life in the big city.

While predictably there are some bemoaning the move, the prospective advantages for New Albany are enormous, at least for those who welcome change to the area. Many see New Albany going the way of Chandler, Arizona, which has grown astronomically since Intel started producing there a few decades ago. Chandler today has close to 300,000 residents, a tenfold increase since 1980.

While there are clearly benefits for New Albany, the calculus for Intel is a bit more nuanced. For a generation part of the class of tech companies that have leveraged a combination of international locations and those in America’s western deserts, the Midwest is a bit of a new frontier. So why did Intel select New Albany for its new semiconductor chip factory? Intel chose New Albany for several reasons: access to water-rich land, lack of limitations to land ownership, industry-friendly regulatory policy, a receptive community, tailored financial and non-financial incentives, proximity to aviation and automotive manufacturing, a pipeline of nearby engineering talent, and a location that offers low housing prices and good schools for its workers.

Lots of land: While Ohio isn’t the only state that offers lots of land, it’s one of the several that does offer land, in this case over 1,000 acres, with the expansion capability to double, without a lot of hurdles getting in the way.

Water-rich land: Not only is Ohio’s land abundant, but for a water-intensive industry like chip manufacturing, the fact that Ohio also has plenty of water gives it a major leg up on other states that are rich in land like Nevada and Arizona. At Intel’s chip manufacturing facility in Chandler, the state’s perpetual water shortages are a nagging nuisance.

Lack of limitations around protected spaces or land ownership: Not only does Ohio offer a lot of land, but the combination of a fairly lightly populated area in flat farm country in a state in which draconian environmental regulation has not yet begun to dominate all conversations means that the land for Intel has been easily procurable with few hurdles along the way.

Favorable regulatory environment for industry: The regulatory environment of Ohio offered Intel two primary advantages. First, because the state has been dominated by conservative leadership for generations environmental regulations are fairly light, even for industries like chip manufacturing which have come under increasing scrutiny elsewhere in recent years around impacts on the water supply and air quality. Second, because Ohio has been fighting to save its legacy industries for generations, it is already home to some of the most industry-favorable regulatory conditions in the country. Unlike the coasts, where industry is generally regarded as a four-letter word, in Ohio industry continues to be the lifeblood of the economy, and something politicians smile upon with protective fancy.

A community reasonably happy about the move: The contrast between central Ohio’s response to Intel’s decision with that of New York City when Amazon tried to build its second headquarters there a few years ago could not be starker. In New York, politicians infamously marshalled extensive backlash against Amazon’s decision to invest in their community. In Ohio, politicians at all levels of government have quickly aligned to support it. Governor Mike DeWine is likely to trumpet attracting Intel as one of his finest accomplishments as governor, and all the way down the line government has happily lined up incentives to attract Intel to come. In New Albany itself, resident grumblings have been limited. The lack of a need to displace any residents to build the factory has made for few opponents, and here the lack of a space premium has limited concerns that might manifest elsewhere around such a massive landtake for a facility that in fact will generate only 3,000 professional jobs, a sizeable but not astronomical number that comes at a cost of nearly $700,000 in state incentives per job.

A tailored incentives package: No doubt Ohio is doling out the incentives to make this happen. They’ve marshalled a lot of state money to help Intel along. But notably it wasn’t the biggest package among the 40 cities that were vying. Rather, Ohio’s incentive package is focused on realizing helping Intel be able to close the “critical margins” between the cost of developing in Ohio and the cost of developing internationally.

Non-financial incentives: While many of the incentives provided by Ohio to help Intel close the gap on the critical margin were financial ones – namely $600 million for building, $700 million for state roadwork and infrastructure upgrades, $650 million in state and local tax breaks, $150 million in workforce grants, and a 30-year property tax abatement on buildings, policy incentives were powerful carrots as well. Leveraging Ohio’s friendly regulatory environment, Intel and Ohio were able to agree to allow and encourage Intel to reuse its wastewater on-site, important to achieving a stable bottom-line in a water-intensive industry. Ohio was also willing to agree to move much more quickly to approve permits and plans than notoriously regulatorily intense states like California.

Intangibles that amplified the value of incentives to Intel: Part of why the incentive package was workable for both Ohio and Intel was that both saw carrots in the deal that made the incentive package more of a “cherry on top” and less of the whole sundae. For Intel, this came from the narrative that Ohio made possible. Ohio, more than perhaps any other location on their list, offered Intel the opportunity to put forward a narrative about reinvestment in the Heartland, and ergo reinvestment in the nation. Because their long-term calculus around semiconductors is dependent on Congressional legislation, the intangibles of the feel-good Ohio story to help them realize federal incentives amplified the potential for the local incentives to carry value.

Intangibles that amplified the value of incentives to Ohio: Meanwhile the value of Intel to Ohio transcended its singular economic impact. While the plant itself will bring around 3,000 company jobs and 7,000 construction jobs, a sizeable economic leap that will likely at least lead to the doubling of the population of New Albany, semiconductor plants have a track record of bringing along tens of thousands of additional jobs for suppliers and partners. Even a greater carrot, however, is the extent to which this factory in particular will augment the possibilities for other industries in Ohio. While typically semiconductors feed smartphones and personal computers, products produced mostly elsewhere, Intel doesn’t make chips for smartphones, and it has fallen behind competitors at making chips for personal computers, something that has left it in something of a desperation position within the industry. In turn it is scrambling to make up the difference in other industries, most notably by producing chips for automobiles as well as for the kinds of high-performance computing needs in the aviation and defense industries. What Ohio lacks in smartphone production that might align it to a typical semiconductor factory it makes up for in these other industries, with extensive production activities for GM, Ford and Honda located proximately to Columbus, and major aviation and defense activities tied to the Wright-Patterson Air Force Base in nearby Dayton. For Ohio, the proposition of housing chip production specifically tied to these industries strengthens its case to retain production activities for core industries that carry tremendous economic and political clout in the state today. For Ohio, it was worth it to overpay a bit on this deal to maintain

Collaboration between layers of government: If there’s anything managerially where smaller cities are better than bigger cities, it’s at getting their stakeholders to collaborate. The most successful small cities have realized that to compete with large ones, they need to marshal the full arsenal of their civic resources. Columbus has pioneered what its leadership calls “the Columbus way”, a catchy way of describing the civic consensus that partnerships between companies, government, and institutions are important to move the city forward. Here, that meant combining a package of state and local incentives and infrastructure upgrades, but also bringing area colleges and universities directly into the conversation to help build up the skills infrastructure to grow the pool of graduates from which Intel can attract talent. Among the developments here will be the the Intel Ohio Semiconductor Center for Innovation, a partnership between Intel and local community colleges to build semiconductor-specific curricula. Ohio State’s president is also an engineering graduate, and Ohio State is already making several moves to try to bolster its prominence as a destination for innovation-savvy engineering students. While the limited pool of universities in a fairly low-density state like Ohio poses limitations, it also offers Intel the benefit that the universities are willing to bend over backward to realize partnerships that can be mutually beneficial. That kind of attention counts for something.

Access to 50th to 80th percentile talent: When Amazon opted for New York, and then the Washington, DC area to build its second headquarters, it shunned over 200 applications from cities not on the coasts. The move reinforced the idea that big companies seek elite students, and that elite students are found only in large numbers on the coasts. It’s true that the overwhelming majority of super-elite colleges are coastal, and as such uber-complicated tech and finance jobs are concentrated around those hubs. Ohio, meanwhile, while it has its share of brilliant students, doesn’t have any universities ranked in the nation’s top 30. But what Ohio does offer is something that General Electric, JP Morgan Chase, and Proctor & Gamble realized years ago: an abundant pool of graduates who fall slightly below that elite tier, and little competition for their services upon graduation. Call them the 50th to 80th percentile students. It’s a pool of students who are tremendously valuable to large corporate infrastructures, capable of leading complex activities in complex and specialized fields. Intel’s chip manufacturing won’t require Oxford Ph.D.s, but 60% of the new jobs will need to be talented engineers with Bachelor’s degrees, something Ohio offers in volume. Ohio State cranks out 10,000 engineers each year. Harvard cranks out fewer than 200. And the Ohio State engineers will likely all want to work for Intel, not true at more globally-connected Harvard.

An alternative frontier for graduate: For a generation is has held that young and talented graduates will flock to the excitement of big cities for jobs. But post-pandemic that might be changing. With Americans now awake to the expenses and inconveniences of big cities like never before, and with an increasing focus on building good environments for young families, New Albany’s low cost of living, large lots, and good schools may be positioned at the right place and the right time to snag some elite talent that suddenly seem to be shunning the coasts. When Les Wexner hired planners to envision New Albany as a planned community with white picket fences and Georgian architecture, he probably just wanted to make it a nice place. But now that it’s been ranked the #1 suburb in America, according to one publication, and has the jobs to go with it, New Albany’s next problem might be battling the kinds of character, property, and identity battles that have plagued other suburbs inundated by growth. At any rate, for Intel, it’s a savvy bet on a value proposition to graduates that just might work.

Birth of an industrial conflux: Intel is a pioneer in central Ohio, but in arriving it becomes a lynchpin that will link existing industries. Amazon, Google, and Facebook already have data centers in New Albany, and they join an industrial landscape dotted by companies like Honda, Ford, and GM. Put them altogether and Ohio’s competitive landscape is growing. It’s exactly what those who worked so hard to bring Intel to the state had in mind. Clusters of collaboration can yield exponential growth. We’ll see if that happens for the new “Silicon Heartland”.

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