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.

Source: Intel

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  • meacupla - Wednesday, August 24, 2022 - link

    I bet the fabs would be cheaper to build, if Intel didn't give their government handouts (chips act) to their shareholders.
    "Here's a blank check for $76,000,000,000. Go spend it on anything you want, no strings attached. Oh, and here's the loophole in the law we put in specifically, because you offered money to us".
    Reply
  • catavalon21 - Wednesday, August 24, 2022 - link

    If the Gov is silly enough to give a public company with share holders and an expectation of profit a blank check with no strings, that's what they get. Reply
  • meacupla - Wednesday, August 24, 2022 - link

    No, I don't think you understand.
    This is not "You get what you deserve, because gov is too dumb".
    This is what is called "legalized bribery and corruption".
    Reply
  • RealBeast - Thursday, August 25, 2022 - link

    You must have done very poorly in law school, or perhaps are too simple to understand that all companies make lawful donations to politicians to get benefits in return.

    Do you think that Intel is the only company make donations or reap such rewards? lol
    Reply
  • ripsteakjaw - Tuesday, August 30, 2022 - link

    oh, well, I guess it's okay then, it's lawful. Reply
  • lucaB75 - Sunday, September 11, 2022 - link

    you really dont understand. USA lost their technological edge and government is trying to catch up. problem is they are bunch of idiots, old people that read news instead of looking for new trends . finally they finance mature industries Reply
  • quorm - Wednesday, August 24, 2022 - link

    Spend the past decade+ investing in stock buybacks instead of r&d and get rewarded by the gov't with more money to give the stockholders. Future looking bright for Intel. Reply
  • RedGreenBlue - Wednesday, August 24, 2022 - link

    They’re like a normal company that has to reward investors. Coca Cola pays out dividends too. There’s nothing wrong with it. Dividends are a necessary part of corporate finance. Otherwise Intel wouldn’t exactly be interesting to own for investors who want a more reliable return. That’s capitalism, get over it. You don’t seem to understand much about that bill.
    “Companies are prohibited from using awarded funds through the CHIPS program for stock buybacks or payment of dividends. The expansion clawback in the bill requires the recipients of federal financial assistance not to engage in certain material expansions of semiconductor manufacturing in countries of concern.”
    Reply
  • RedGreenBlue - Wednesday, August 24, 2022 - link

    A big part of why Intel is doing this is because their fab roadmap has been a mess for almost 10 years and they need help to stay competitive in the current market and it’s taken years gor them to realize their old paradigm can’t survive. Reply
  • quorm - Wednesday, August 24, 2022 - link

    If you believe that, I have a bridge i'd like to sell you. As if paying for their fab capex doesn't allow them to distribute more cash via buybacks.

    I'm not talking about dividends. Buybacks, which were illegal until the 80's, boost the stock price, allow investors to defer/reduce taxes and get CEOs fat bonuses. Intel is in no way unique, Apple, Cisco, Boeing, etc. all do the same thing, and it's BS.

    Intel does not need help to stay competitive. They need to invest in r&d and fabs instead of artificially boosting their stock price.
    Reply

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