updated 7/25/2005 2:09:37 PM ET 2005-07-25T18:09:37

In a sign that demand for computer chips isn’t slowing, Intel Corp. said Monday it will spend $3 billion to build a factory in Arizona and another $105 million to convert an inactive New Mexico plant into a temporary test facility.

The new microprocessor factory — known as a “fab” in the semiconductor industry — is expected to create up to 1,000 new Intel jobs over the next several years, the company said. Another 3,000 people are expected to be hired during its construction at the company’s site in Chandler, Ariz.

“This investment positions our manufacturing network for future growth to support our platform initiatives and will give us additional supply flexibility across a range of products,” said Intel CEO Paul Otellini.

Construction will begin immediately. Once completed in the second half of 2007, the facility known as Fab 32 will become the Santa Clara company’s sixth factory that produces chip wafers that are about 12 inches in diameter. The other operating factories are in Oregon, Ireland and New Mexico, with others currently under construction in Ireland and Arizona.

The Arizona Legislature this year enacted a tax relief measure intended to entice the new Intel plant and other major business investments in new or existing plants.

The measure, signed into law May 20 by Gov. Janet Napolitano, creates a new optional formula that businesses can use to reduce their state income taxes in Arizona. At Napolitano’s insistence, the change takes effect only if companies commit at least $1 billion in capital investment projects.

Intel and major Arizona business groups lobbied for the change.

Arizona tax officials estimated that the optional formula will cost the state $8 million in its first year and gradually increase to $150 million annually once fully implemented. Supporters said the analysis didn’t include tax revenue from the creation of hundreds of high-paying jobs or other economic activity produced by projects enticed to the state by the change.

Intel also announced plans to convert an inactive fab in Rio Ranch, N.M., to a temporary component test facility for the next two years. It’s expected to result in another 300 jobs to be added to the New Mexico site during that period.

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