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Intel to spend $ 20 billion on US chip plants as CEO challenges Asia dominance

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Intel Corp will greatly expand its advanced chip manufacturing capacity as the new CEO announced plans to spend up to $ 20 billion to build two factories in Arizona and open its factories to outside customers.

Chief Executive Pat Gelsinger’s move on Tuesday is aimed at restoring Intel’s reputation after manufacturing delays sent shares plummeting last year. The strategy will directly challenge the other two companies in the world that can make the most advanced chips, Taiwan’s Semiconductor Manufacturing Co Ltd (TSMC) and Korea’s Samsung Electronics Co Ltd..

And it will also aim to tilt a technological balance of power toward the United States and Europe, as government leaders on both continents have worried about the risks of a concentration of chip-making in Taiwan given tensions with China.

Intel shares rose 6.3% after the company unveiled its new full-year financial strategy and guidance for 2021. Some investors, such as Third Point LLC, had previously urged Intel to consider spinning off their expensive chip manufacturing operations.

Intel said it expects $ 72 billion in revenue and adjusted earnings per share of $ 4.55, compared to analyst estimates of $ 72.9 billion and $ 4.77 per share, according to Refinitiv data. The company said it expects to spend between $ 19 billion and $ 20 billion on capital expenditures.

Gelsinger said the forecast for 2021 “reflects industry-wide shortages” of some components like substrates.

Intel is one of the few remaining semiconductor companies that designs and manufactures its own chips. Rival chip designers like Qualcomm Inc and Apple Inc trust contract makers.

In an interview with Reuters, Gelsinger said that Intel has “completely solved” its problems with its latest manufacturing technology and that “all systems work” on chips by 2023. It now plans a massive manufacturing expansion.

That will include spending $ 20 billion on two new factories on an existing campus in Chandler, Arizona, which will create 3,000 permanent jobs. Intel will then work on future sites in the United States and Europe, Gelsinger said.

Intel will use those factories to make its own chips, but it will also open them up to outside customers in what is called a “foundry” business model in the chip industry. Gelsinger said the new factories will focus on making cutting-edge computer chips, rather than the older or specialized technologies that some manufacturers, such as Global Foundries, specialize in.

“We are absolutely committed to leading process technology capabilities at scale for the industry and for our customers,” Gelsigner said, adding that Intel has lined up customers for the new factories, but was unable to reveal their names.

He said in a webcast Tuesday that Amazon.com Inc, Cisco Systems Inc, Qualcomm Inc and Microsoft Corp support his efforts to offer chip manufacturing services.

The move is a direct challenge for TSMC and Samsung. The two have come to dominate the semiconductor manufacturing business, shifting their center of gravity from the United States, where much of the technology was invented, to Asia, where more than two-thirds of advanced chips are now made.

Gelsinger said Intel will aim to change that global balance by embracing the foundry business where it has historically been a minor player. Intel will offer chip customers the ability to license their own crown jewels, known as x86 instruction set architecture, as well as offer chip builds based on Arm Ltd technology or emerging open source technology. RISC-V, he said.

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

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

But even as Intel comes into competition with TSMC and Samsung, it also plans to become a bigger customer of theirs by turning to them to make sub-components of its chips called “mosaics” to make some more profitable chips.

“I will choose the best process technologies wherever they exist,” said Gelsinger. “I take advantage of both internal and external supply chains. I will have the best cost structure. We think that combination of supply, products and costs is an excellent combination.”

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