Source: Intel

Although Wall Street responded positively to Intel’s recent announcement of its decision to close its chip manufacturing, encapsulation and testing plant in Costa Rica, observers and some analysts who have been following the company’s trailing performance in the highly competitive mobile arena are beginning to wonder if the writing is on the wall for the chip maker.

Shares of Intel gained 1.6 percent after investors learned that it would cease its manufacturing operations located in Belen, province of Heredia, not far from the new Hard Rock Cafe. The company’s workforce was thus reduced by 1,500 employees, which represented 1.5 percent of its global payroll. Investors love nothing more than to learn about layoffs, which explains why they piled on Intel’s shares on Tuesday, April 8^th.

The rationale for Intel’s drastic reduction of operations in Costa Rica was explained by Don Clark of the Wall Street Journal as follows:

Intel, based in Santa Clara, Calif., has been grappling with the effects of a slowdown in sales of personal computers that use its microprocessor chips. The company has also been slow to build a sizable business in chips for smartphones and tablets.

The chips made in Costa Rica can be found in millions of desktops and laptops around the world, and it so happens that sales of those hardware products have been plummeting as smartphones and tablets are leading the personal computing marketplace. Instead of making chips here, Intel will move those operations to three places where the cost of manufacturing is dirt cheap and working conditions are often infernal: China, Malaysia and Vietnam.

Earlier this year, Intel pulled a similar downsizing move in Arizona. Writing for Ars Technica, Peter Bright explained:

Intel has mothballed a new chip factory, “Fab42,” before the place even opened. The factory, based in Chandler, Arizona, was first announced in 2011 and was to be a cutting-edge, $5 billion facility building chips on a 14nm processor. Intel promised 1,000 jobs would be created, and two years ago, President Obama visited the site while campaigning for re-election to champion it as a demonstration of an America that “attracts the next generation of good manufacturing jobs.”

At Wall Street Cheat Sheet, Jacqueline Sahagian expanded on Intel’s poor performance in the mobile marketplace:

[…] the company has already warned investors that revenue will likely be flat yet again. Intel forecasts that sales will be roughly the same from $52.6 billion in 2013, under the $53.7 billion analysts projected. That announcement, made in November, caused the biggest stock decline Intel had seen in 10 months. The company has been hit hard by the switch to mobile and is scrambling to play catch-up.

While the company attempts to downplay the significance of the factory being shelved, there’s no way around the embarrassment of stopping a project that President Barack Obama once called “an example of an America that is within our reach.”

For the time being, Intel still plans to employ about 1,200 employees in Costa Rica at its existing research and development center. Those employees will presumably scramble to create new mobile technologies that can be cheaply manufactured in Asia by employees who earn far less than the what the minimum wage spectrum mandates in Costa Rica, and who don’t expect to receive much with regard to benefits or adequate working conditions.

Only time will tell if the company can catch up to its competitors and establish a firm foothold on the new paradigm of mobile computing.