In $20bn push, Intel hopes to make US chip-making great again

Intel Corp says it will greatly expand its advanced chip manufacturing capacity as the United States-based technology giant’s new chief executive announced plans to spend as much as $20bn to build two factories in Arizona and open its plants to outside customers.

The announcement by CEO 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 Co Ltd (TSMC) and South Korea’s Samsung Electronics Co Ltd.

And it will aim to tilt a technological 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 chipmaking in Taiwan given tensions with China.

Intel shares rose 7.5 percent after the company disclosed its new strategy and full-year financial guidance for 2021. Some investors such as Third Point LLC had previously urged Intel to consider spinning off its costly chip manufacturing operations.

Intel said it expects $72bn in revenue and adjusted earnings per 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.

Gelsinger said the 2021 forecast “reflects the industry-wide shortage” of some components.

‘All systems go’

Intel is one of the few remaining semiconductor companies that designs and manufactures its own chips. Rival chip designers such as Qualcomm Inc and Apple Inc rely on external contract manufacturers.

In an interview with the Reuters news agency, Gelsinger said 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 large 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 Europe, Gelsinger said.

Intel will use those factories to make its own chips but also open them to outside customers in what is known as a “foundry” business model in the chip industry. Gelsinger said the new factories will focus on cutting-edge computing chip manufacturing, rather than the older or specialty technologies 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,” Gelsinger said, adding that Intel has lined up customers for the new factories but could not disclose their names.

He said on a webcast on Tuesday that Amazon.com Inc, Cisco Systems Inc, Qualcomm Inc and Microsoft Corp support its efforts to offer chip manufacturing services. On a conference call, Gelsinger said that Intel “will pursue customers like Apple.”

Intel dominated the $400bn industry for decades by making the best designs in its own cutting-edge factories. That strategy crumbled in recent years as the company missed deadlines for new production technology, while most other chipmakers tapped foundry specialists to make their designs.

Intel’s factories now trail TSMC and Samsung Electronics Co., which make chips for Intel competitors, such as Advanced Micro Devices Inc and big Intel customers including Amazon.com Inc and Apple Inc.

TSMC and Samsung have come to dominate the semiconductor manufacturing business, moving its centre of gravity away from the US, where much of the technology was once invented, to Asia, where more than two-thirds of advanced chips are now made.

“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, high-wage American jobs,” US Secretary of Commerce Gina Raimondo said in a statement.

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. Intel will offer chip customers the ability to license out its own technological crown jewels – known as x86 computing cores – as well as offer to build chips based on technology from Arm Ltd and startup SiFive.

“We will be picking our next sites within the next year for US and Europe,” he said.

‘Killer combination’

Gelsinger’s plan is a rallying cry for those who want Intel – and the US – to reassert technology leadership. China is investing hundreds of billions of dollars to develop its own semiconductor industry and there are renewed calls for the US government to support domestic production.

There is considerable ground to make up for Intel and the US, though. Some analysts doubt the company can catch TSMC soon, or ever. Doing so will require a heavy investment. TSMC will spend as much as $28bn in 2021. That is twice the amount Intel spent last year.

Intel’s US sites could benefit from a $30bn subsidy package that legislators hope to bring to the floor of the US Senate next month. The bill remains largely unwritten, and Gelsinger said on a conference call that Intel’s plan “does not depend on a penny of government support. It is the right strategy for us going forward”.

Intel also announced plans for a new research collaboration with IBM focused on computing chip and packaging technology.

But even as Intel jumps into competition with TSMC and Samsung, it also plans to become a larger customer of theirs by turning to them for subcomponents called “tiles” to manufacture some chips more cost-effectively.

“I’ll pick the best process technologies wherever they exist,” Gelsinger said. “I leverage internal and external supply chains. I’ll have the best cost structure. That combination of supply, products and costs, we think is a killer combination.”

Intel has given few details of exactly how it will use outside factories, but analyst Patrick Moorhead of Moor Insights and Strategy said he expects Intel to use them as “gap fillers for some of the highest performance” chip parts until Intel can regain a manufacturing lead over its rivals.