The centerpiece of Intel's five-year spending plan is
turning empty fields near Columbus, Ohio, into what CEO Pat Gelsinger described
to reporters on Tuesday as “the largest AI chip manufacturing site in the world”
starting as soon as 2027.
The U.S. government announced the federal funds to Intel
under the CHIPS Act on Wednesday, sending its shares up 4% in premarket
trading.
Intel’s plan will also involve revamping sites in New Mexico
and Oregon, and expanding operations in Arizona, where longtime rival Taiwan
Semiconductor Manufacturing Co is also building a massive factory that it hopes
will receive funding from President Joe Biden’s push to bring advanced
semiconductor manufacturing back to the U.S.
The funds provided by Biden’s plan for a broader chip making
renaissance will go a long way to help Intel mend its wounded business model.
For decades, Intel led the world in making the fastest and
smallest semiconductors, selling them at a premium price and plowing the
profits back into more research and development to stay ahead of the pack.
But Intel lost that manufacturing edge in the 2010s to TSMC
and its profit margins plummeted as it cut prices to keep market share with
inferior products.
Gelsinger announced a plan in 2021 to return Intel to the
No. 1 position, but to make the plan profitable, he has said he would need
government support.
With that assistance in hand, it’s now time for Intel to
spend.
Gelsinger said about 30% of the $100 billion plan will be
spent on construction costs such as labor, piping and concrete. The remaining
will go to buying chipmaking tools from firms such as ASML, Tokyo Electron,
Applied Materials and KLA, among others.
Those tools will help bring the Ohio site online by 2027 or
2028, though Gelsinger warned the timeline could slip if the chip market takes
a dive. Beyond grants and loans, Intel plans to make most of the purchases from
its existing cash flows.
Gelsinger has previously said that a second round of U.S.
funding for chip factories likely will be needed to re-establish the United
States as a leader in semiconductor manufacturing, which he reiterated on
Tuesday.
"It took us three-plus decades to lose this industry.
It's not going to come back in three to five years of CHIPS Act" funding,
said Gelsinger, who referred to the low-interest-rate funding as "smart
capital".
However, even with the federal backing, Intel needs to show
that it can compete with its Taiwanese and Korean rivals sooner rather than
later, said Ben Bajarin, CEO of analyst firm Creative Strategies.
"It will be important to know how much longer 'smart
capital' is needed for Intel before they can stand on their own," Bajarin
said.
Overall, though, Intel would be the most important chipmaker
for U.S. interests even as rivals build in the country, said Jimmy Goodrich, a
semiconductor export and technology adviser at RAND Corp.
"Only Intel has the workforce, technology, and supply
chain that is largely U.S. centric. So while what TSMC and Samsung are doing
here is important and should be welcomed, it's also important to have a strong
home team," he said. -Reuters
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