California Loses Bid for Intel Factory : Manufacturing: The No. 1 chip vendor picks New Mexico for a $1-billion plant. California and Texas had been contenders.

SAN FRANCISCO —  California’s limping manufacturing sector took another hit Thursday as Santa Clara-based computer chip vendor Intel Corp. announced that it would build a $1-billion factory outside Albuquerque, N.M.

California officials had tried to persuade Intel to build the plant in Folsom, near Sacramento, and the company had entertained offers from four other states and several foreign countries.

Intel’s decision came on the heels of Hughes Aircraft’s announcement Monday that it would move 1,900 aerospace engineering jobs from Canoga Park to Arizona.

California business leaders were quick to portray Intel’s announcement as yet another example of the state’s declining competitiveness.

“This ought to be a major wake-up call to the Legislature,” said William Campbell, president of the California Manufacturers Assn. “We’re losing our competitive edge.”

Yet Intel’s move also points up the inherent difficulties California faces in competing with low-cost locales, such as New Mexico, that are willing to pony up big subsidies to attract business. New Mexico is giving Intel about $114 million in tax breaks and other incentives; manufacturing wages in Albuquerque average about $400 a week--compared to $600 a week in the San Jose area.

When completed in 1995, the factory is expected to employ about 1,000 people.

Intel spokesman Howard High said that when the company began planning the facility two years ago, it had not expected California to be a serious contender because of high costs and regulatory burdens. But the state--especially via the Department of Trade and Commerce’s special “red teams”--has made considerable progress helping businesses cut red tape and deal with regulatory issues, he said.

Thus the Folsom site, where Intel already has a facility, became a location worth serious consideration, High said. The state’s efforts were also instrumental in persuading Intel to move ahead with a $400-million expansion of a Santa Clara facility late last year.

High said California’s sales tax on manufacturing equipment remained a significant obstacle and would have added more than $70 million to the cost of the new factory. Business groups, led by the California Manufacturers Assn., have been pushing a bill--now sponsored by Assembly Speaker Willie Brown--that would exempt such equipment from sales tax.

Even had that bill already been law, it wouldn’t have been enough to sway Intel, High said. The CMA is also pushing for revision of workers’ compensation laws and loosening of various regulatory requirements.

The New Mexico site, in the Albuquerque suburb of Rio Rancho, is already home to two Intel plants. It was chosen over Folsom and other Intel locations in Arizona and Oregon. Texas also made a strong bid for the new factory.

Analysts cheered Intel’s decision to build the plant in the United States instead of overseas, where High said it would have been as much as $200 million cheaper. They noted that California will still benefit from Intel’s increasingly powerful position in the computer chip business.

The new factory, to be the most expensive chip plant ever built, will produce next-generation microprocessor chips, which form the brain inside industry-standard personal computers. Intel is the world’s largest chip vendor; it plans to spend $1.6 billion on plant and equipment this year.