Intel Kicks Off Fab Co-Investment Program with Brookfield: New Fabs to be Jointly Ownedby Anton Shilov on August 24, 2022 4:30 PM EST
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Intel this week introduced its new Semiconductor Co-Investment Program (SCIP) under which it will build new manufacturing facilities in collaboration with investment partners – a sharp departure from the company's traditional stance of wholly owning its logic fabs. As part of its SCIP initiative, Intel has already signed a deal with Brookfield Asset Management, which will provide Intel about $15 billion to build its fab new fab in Arizona in exchange for a 49% stake in the project. Furthermore, similar co-investment models are set to be used for other fabs in the future.
New Fabs Are Getting Costlier
When Intel announced plans to produce chips for other companies last year (and to a large degree become a contract maker of semiconductors), it marked a significant shift in the company's business strategy that required Intel to build new manufacturing capacity not only for itself, but for its future clients as well. But modern fabs are exceptionally expensive, as new manufacturing tools — such as contemporary extreme ultraviolet (EUV) lithography scanners — are prohibitively expensive, which makes it considerably harder for the company to execute on its IDM 2.0 strategy from capital point of view.
To get sufficient capacity for its own products and for its fabless clients in the mid-term future, Intel had to engage into several capital-intensive projects: the $7.1 billion fab expansion in Ireland (which has probably been completed); two new fabs — Fab 52 and Fab 62 — at its Ocotillo site near Chandler, Arizona that were expected to cost $20 billion; an all-new semiconductor production campus in Ohio that will need $20 billion initially and will be a size of a small town as well as will cost up to $100 when fully built; and an all-new production facility near Magdeburg, Germany (which will require an investment of €17 billion).
Intel is set to get billions in incentives from local authorities as well as subsidies from federal governments of the U.S. and Germany to build these fabs. But modern EUV-capable semiconductor production facilities cost about $10 billion (large gigafabs with a capacity of 100,000 wafer starts per month cost north from $20 billion), so financing these projects is particularly challenging even for Intel. Therefore, in a bid to build its new facilities in Arizona the company decided to engage into its co-investment program with Brookfield.
Intel to Maintain Majority Ownership
Under the terms of the deal, the two companies will co-invest $30 billion in the ongoing expansion of the site with Intel financing 51% and Brookfield backing 49% of the total project cost. Previously Intel planned to invest $20 billion in its Fab 52 and Fab 62, but together with Brookfield the sum has increased to $30 billion. In addition to getting access to additional funding, Intel could also take advantage of Brookfield's experience in developing infrastructure assets.
By working together with Brookfield, Intel will get $15 billion in free cash flow and will be able to invest more into its new fabs without raising new debt. Also, this will allow Intel to invest more in other projects while "continuing to fund a healthy and growing dividend." Meanwhile, the $15 billion benefit is "expected to be accretive to Intel’s earnings per share during the construction and ramp phase."
Perhaps the key part of the announcement is the fact that Intel plans to sign similar deals with co-investors in the future, so expect its upcoming manufacturing capacity to be co-funded by others. Intel will retain majority ownership and operating control of its chip factories, but it will not own 100% of them. Previously the company rarely engaged into joint ventures, the most notable exceptions being IMFT, the company's NAND flash joint-venture with Micron, and participating in ASML's customer co-investment program from early 2010s.
"This landmark arrangement is an important step forward for Intel’s Smart Capital approach and builds on the momentum from the recent passage of the CHIPS Act in the U.S.," said David Zinsner, Intel CFO. "Semiconductor manufacturing is among the most capital-intensive industries in the world, and Intel’s bold IDM 2.0 strategy demands a unique funding approach. Our agreement with Brookfield is a first for our industry, and we expect it will allow us to increase flexibility while maintaining capacity on our balance sheet to create a more distributed and resilient supply chain."
Co-ownership of semiconductor manufacturing facilities is not something unheard of the industry. China's Semiconductor Manufacturing International Co. (SMIC) invests in new fabs together with local authorities of Chinese provinces as well as various asset management companies and/or investment banks (many of which are controlled by China's federal government). GlobalFoundries used to be co-owned by AMD and Mubadala before the latter acquired AMD's stake as the chip developer badly needed money. Yet, a co-investment program is something particularly new for Intel, which has always owned 100% of its manufacturing facilities. Ultimately, as it looks like as the semiconductor production is getting more expensive, there is a first time for anything.
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RedGreenBlue - Wednesday, August 24, 2022 - linkYou do realize it’s a bit more complicated than that. If China invades Taiwan, then the whole world is screwed. There would be a massive shortage of computers, phones, televisions, and the military would have difficulty restocking weapons, presenting a massive threat to national security of the United States and NATO and the weakness could precipitate World War III. So it’s for good reason countries around the world are trying to build enough fabrication capacity outside of Taiwan in case they invade. TSMC already had to acquire a stockpile of Argon gas because a lot of Argon comes from Ukraine.
quorm - Wednesday, August 24, 2022 - linkLol, this post is liberal bingo.
Threska - Wednesday, August 24, 2022 - linkExcept the chip shortage is more than just Taiwan.
PeachNCream - Thursday, August 25, 2022 - linkGood work baiting people into hysterics over politics without directly addressing the politics. Admittedly, it's low-hanging fruit these days as AT readers have proved they're prone to the usual overreactions common to other websites. The volume of responses does speak to your targeting.
You get a 6/10 for troll quality. Nice work!
Yojimbo - Thursday, August 25, 2022 - linkIntel hasn't bought back any stock since the first quarter of 2021. What "government handouts" are you talking about, specifically?
In 2018, 2019, and 2020, before Gelsinger took over, Intel bought back a lot of shares, which was a big mistake for the company, as they should have been using that money for capital investment they are now trying to catch up on. But it wasn't from "government handouts".
quorm - Friday, August 26, 2022 - linkYou are correct that the buybacks stopped in 2021. But they are not a "mistake", as they have been going on for a long time. https://www.intc.com/stock-info/dividends-and-buyb...
Many people (correctly) see the CHIPS act as a government handout because the govt is paying them to do what is a normal part of their business, which they should have done with their revenue in the first place.
lucaB75 - Sunday, September 11, 2022 - linkfabs will cost the same, silly comment.
xol - Wednesday, August 24, 2022 - linkNobody could possibly predict that the current expansion in North America (and European) fabs in addition will lead to massive over capacity in 5 years time..
Possibly that could lead to cheap chips, or unpleasent wasteful shutdowns.
Reading between the lines/the room makes it clear that the 'US' is actually really concerned about losing Taiwanese chip capacity .. does that become a self fulfilling prophecy?
coburn_c - Wednesday, August 24, 2022 - linkAlmost certainly does
quorm - Thursday, August 25, 2022 - link$15B half a fab
$6B a gpu with broken drivers only available in china
$400B stock buybacks
$1B rhomboicosahedral CPU boxes
someone who is good at the economy please help me budget this. my multi-decade process leadership is dying