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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name99 - Thursday, August 25, 2022 - linkThe most important and interesting question here is also the one that has not been asked:
to what extent does * Brookfield Asset Management* get to control the inside of that fab?
That means everything from
- what equipment gets bought? (Intel 10nm debacle probably started with Intel not being willing to buy EUV equipment)
- who designs the process? (Intel's process since 14nm seems to have been designed by marketing with the goal of producing slides that can pwn TSMC. Does BAM get to bring in adult supervision and cautious improvement rather than huge moonshots that then explode on the launchpad?)
- who gets access to the fab? (Does Intel get to create their own custom processes like i4 that aren't shared with fab customers? I can't imagine BAM are especially thrilled with such a procedure...)
It's these sorts of issues which determine whether BAM are being played for a patsy, or whether this can actual turn Intel around.
Meanwhile, in other "OMG, is there nothing Intel management cannot fsck up" news, I draw your attention to: https://www.computeexpresslink.org/_files/ugd/0c14...
Turns out that maybe the world does want persistent RAM – they just don't want anything to do with Intel and Optane if they can possibly avoid it?
cyrusfox - Thursday, August 25, 2022 - linkIntel is both part of JEDEC (https://www.jedec.org/about-jedec/member-list) and CXL (https://www.computeexpresslink.org/members)
Issue with Persistant RAM is manufacturing cost.
ballsystemlord - Thursday, August 25, 2022 - link@Anton I think you mean $100B.
"...of a small town as well as will cost up to $100 when fully built;..."
shack95 - Friday, August 26, 2022 - linkIf semi conductors require a large amount of water for their production. Is building a plant in drought stricken south west really a good move?
meacupla - Saturday, August 27, 2022 - linkNo, it's an awful idea. It's even predicted that Lake Mead will completely dry out in 2023, if we go on with "business as usual".
Threska - Sunday, August 28, 2022 - linkWater can be recycled in plant. It's actually better to do so (although not for the reasons you think).
drwho9437 - Sunday, August 28, 2022 - linkI guess everyone knows how much Samsung is subsidized by Korea, and everything that is subsidized in China?
Intel past isn't under the current CEO so equating the past behavior with now is foolish. The EU also as noted has made grants its because these countries realize that the higher costs to build in the US have put Intel and others at disadvantages structrually.
It hasn't helped that the 10 nm node was a huge miss where Intel tried to do too much all at once. Had they executed it would have been better than what TSMC and Samsung had at the time but it just didn't yield fast enough and they didn't do the normal backup plans etc.
Intel had a huge miss with Netburst and recovered the lead later with Core. Now there is M1 and M2 Silicon and AMD is resurgent, but Intel is huge. If they are given time there will be people to turn the ship and they will be competitive again and with acquisitions like Tower and Altera it may be interesting what they are going to do and offer IP wise.
I think honestly though that Silicon technology is coming to an end here with all around gate devices and EUV. Things will be about economies of scale going forward. I think Intel knows that and is trying to reach that scale.