Good news for investors. Two new chip plants for $20Bn: Intel

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Intel plans to spend $20 billion to build two new chip factories, called fabs, in Ocotillo, Arizona. Intel stock rose as much as 5 per cent after this news announcement. Investors are looking forward to the expansion and progress plans set forth by Intel.

The announcement, coinciding with new CEO Pat Gelsinger’s first public remarks since taking over the job, signals that Intel will continue to focus on manufacturing during industry shifts that have led competitors to increasingly separate chip design and chip fabrication.

“Intel is back. The old Intel is now the new Intel,” Gelsinger said. Investors had been hoping that Gelsinger, who started his career with over 30 years at Intel, could right the ship after years of challenges in which its most advanced chip development stalled and was passed by Asian rivals, like TSMC, which can currently manufacture smaller transistors and thus superior chips.

The news comes during a global chip shortage that is staring at the face of the industries from automobiles to electronics and worries the U.S. is falling behind in semiconductor manufacturing.

“Intel is and will remain a leading developer of process technology, a major manufacturer of semiconductors, and the leading provider of silicon globally,” Gelsinger said. “We have that confidence in our execution. That our teams are fired up. You know, if we said we’re going to do X, we’re going to do 1.1x every time we make a commitment,” he added.

Intel also said that it will act as a “foundry,” or a manufacturing partner, for other chip companies that focus on semiconductor design but need a company to actually make the chips. Intel said its foundry subsidiary will be called Intel Foundry Services and will be led by Randhir Thakur, a current Intel senior vice president. Gelsinger said the foundry business will compete in a market potentially worth $100 billion by 2025 and will manufacture a range of chips, including chips based on ARM technology, which are used in mobile devices, and has historically competed with Intel’s favored x86 technology.

A slide displayed by Intel suggested that companies including Amazon, Google, Microsoft and Qualcomm could be customers for the business. Microsoft CEO Satya Nadella appeared at Gelsinger’s talk in a show of support for Intel’s move.

Intel said it is entering into a partnership with IBM to improve chip logic and packaging technologies, which will “enhance the competitiveness of the U.S. semiconductor industry and support key U.S. government initiatives.”

Currently Intel operates four factories called “wafer fabs,” in the United States. In addition to its site in Arizona, which is being expanded, it also has fabs in Massachusetts, New Mexico and Oregon. It also makes chips in Ireland, Israel and has a single fab in China. Intel’s foundry will offer a U.S. and Europe-based alternative to Asian chip factories.

In February, President Joe Biden said domestic semiconductor manufacturing is a priority for his administration. His administration hopes to fix going chip shortages and address lawmaker concerns that outsourcing chip making had made the U.S. more vulnerable to supply chain disruptions. Biden started a 100-day review that could boost American chip companies with additional government support and new policies.

“Today’s Executive Order, combined with full funding for the CHIPS Act, can help level the playing field in the global competition for semiconductor manufacturing leadership, enabling American companies to compete on equal footing with foreign companies heavily subsidized by their governments,” Intel said at the time in response to the executive order.

Gelsinger took over Intel on Feb. 15 from former CEO Bob Swan. Although he was most recently the CEO of VMWare, he started his career at Intel and his appointment has been regarded as a homecoming.

He took over a company facing a variety of challenges. Intel had lost its semiconductor manufacturing edge to Asia-based rivals, most notably TSMC. Intel’s most advanced chips use a 14-nanometer or a 10-nanometer process. Intel both designs the chips, then makes them in its own factories, called fabs.

But competitors, including Intel customers like Apple and rivals like, AMD, just design the processor, then have it manufactured by an outside chip factory. These chip factories, like TSMC and Samsung, use a more advanced 5-nanometer process, which is superior because more transistors can fit in the same sized chip, boosting power and efficiency.

“We will pursue customers like Apple” for Intel’s foundry business, Gelsinger said. He said that its 7-nanometer chips are on track to hit a milestone in the second quarter and that it plans to manufacture the majority of its products itself. Still, Intel will increase its use of third-party foundries, including TSMC, Samsung, and GlobalFoundries.

Intel also announced full-year guidance. The company said it expects $4.55 in adjusted earnings per share on $72 billion, below Refinitiv estimates of $4.77 in adjusted earnings per share and $72.94 billion in revenue in revenue. Intel said it expects $19 billion to $20 billion in capital expenditures for the year. Analysts polled by FactSet had expected $14.59 billion.

Source: CNBC