Intel to spend $20bn on two chip plants in US as it challenges Asia’s dominance
Intel will greatly expand its advanced chip manufacturing capacity, with its new chief executive announcing plans to spend as much as $20 billion to build two plants in Arizona and open its factories to outside customers.
The move by chief executive Pat Gelsinger on Tuesday aims to restore Intel’s reputation after manufacturing stumbles sent shares plunging last year.
The strategy will directly challenge the two other companies in the world that can make the most advanced chips, Taiwan’s Semiconductor Manufacturing Company and South Korea’s Samsung Electronics.
It will also aim to tilt a technology balance of power back to the US and Europe as government leaders on both continents have become concerned about the risks of a concentration of chip makers in Taiwan given tensions with China.
Intel shares rose by 7.5 per cent after the company disclosed its new strategy and full-year financial guidance for 2021. Some investors such as Third Point had previously urged Intel to spin off its costly chip manufacturing operations.
TSMC’s shares slid by about 4 per cent in trading yesterday morning.
Intel said it expects $72bn in revenue and adjusted earnings a share of $4.55, compared with analyst estimates of $72.9bn and $4.77 per share, according to Refinitiv data.
The company said it expects to spend $19bn to $20bn on capital expenditures.
Mr Gelsinger said that this year’s forecast “reflects the industry-wide shortage” of some components such as substrates.
Intel is one of the few remaining semiconductor companies that designs and manufactures its own chips.
Rival chip designers such as Qualcomm and Apple rely on contract manufacturers.
Mr Gelsinger told Reuters that Intel has “fully resolved” its problems with its most recent manufacturing technology and is “all systems go” on chips for 2023. It now plans a massive manufacturing expansion.
That will include spending $20bn on two new factories at an existing campus in Chandler, Arizona, that will create 3,000 permanent jobs. Intel will then work on future sites in the US and in Europe, he said.
Intel will use those factories to make its own chips but also open them to outside customers in what is called a foundry business model in the chip industry.
Mr Gelsinger said the new factories will focus on cutting-edge computing chip manufacturing, rather than the older or speciality technology that some manufacturers such as GlobalFoundries specialise in.
“We are absolutely committed to leading process technology capabilities at scale for the industry,
and for our customers,” he said.
Intel has lined up customers for the new factories but Mr Gelsinger would not disclose their names. He said on Tuesday that Amazon, Cisco Systems, Qualcomm and Microsoft support its efforts to offer chip manufacturing services.
On a conference call, Mr Gelsinger said that Intel would pursue customers such as Apple.
The move is a direct challenge to TSMC and Samsung. The two have come to dominate semiconductor manufacturing, moving its centre of gravity from the US, where much of the technology was once invented, to Asia, where more than two thirds of advanced chips are now manufactured.
“Intel’s investment will help to preserve US technology innovation and leadership, strengthen US economic and national
security and protect and grow thousands of high-tech, highwage American jobs,” said US Secretary of Commerce Gina Raimondo.
Mr Gelsinger said Intel will aim to change the global chip manufacturing balance by embracing the foundry business where it historically has been a minor player.
It will offer chip customers the ability to license out its own prized asset – x86 computing cores – as well as offer to build chips based on technology from Arm and RISC-V technology from start-up SiFive.
“We will be picking our next sites within the next year for US and Europe,” he said.
The American sites could benefit from a $30bn subsidy package that politicians hope to bring to the floor of the US Senate next month. The bill remains largely unwritten but
Mr Gelsinger said Intel’s plan “does not depend on a penny of government support”.
“It is the right strategy for us going forward,” he said.
Intel announced plans for research collaboration with IBM focused on computing chip and packaging technology.
As Intel jumps into competition with TSMC and Samsung, it also plans to become a larger customer of theirs by turning to them to make subcomponents of its chips called “tiles” to make some chips more cost-effectively.
“I will pick the best process technologies wherever they exist,” said Mr Gelsinger.
“I leverage internal and external supply chains. I will have the best cost structure. That combination of supply, products and costs ... is a killer combination.”
Intel’s move is a direct challenge to TSMC and Samsung, which have come to dominate chip manufacturing