Business Intel to step up chip manufacturing with $20bn plants

Intel to step up chip manufacturing with $20bn plants

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Intel says it will spend $20bn to build two new semiconductor factories in Arizona, the linchpin of an ambitious turnround strategy that also includes outsourcing whenever necessary and launching a new service to make computer chips for other companies.

The multiyear strategy from newly-appointed chief executive Pat Gelsinger demonstrates Intel’s commitment to build the majority of its own chips, ending any discussion that it should withdraw from manufacturing after falling behind Asian competitors such as Taiwan Semiconductor Manufacturing Company and Samsung.

At the same time, the group is launching Intel Foundry Services to produce chips for other companies, a major change for the Santa Clara, California-based company whose differentiation has come from being both the designer and manufacturer.

Intel shares rose more than 7 per cent in after-hours trading, suggesting investor support for a broad strategy that promised to revitalise chip production in the west, while adopting a new attitude that would result in partnerships and synergies.

The new strategy comes amid a global chip shortage that is causing havoc in the automotive industry. “A key challenge is access to manufacturing capacity,” Gelsinger said of the crisis. “Intel is in [a] unique position to rise to the occasion and meet this growing demand.”

The two new chipmaking “fabs” Intel is building in Arizona mark a decisive move just months after the activist investor Daniel Loeb’s Third Point hedge fund took a $1bn stake in the tech group and suggested the company consider shedding its manufacturing operations.

The new fabs are expected to begin production in 2024. Construction will start this year, creating 3,000 construction jobs. Once built, they will create at least 3,000 “permanent high-tech, high-wage jobs” and about 15,000 local long-term jobs, Intel said.

The company called its plan IDM 2.0, an abbreviation for the “integrated device manufacturing” approach in which the company designs and makes its chips, whereas most of the industry is fragmented.

But Intel said it would be more open to what it called “co-opetition”, or finding ways to partner with — and outsource to — traditional rivals including TSMC and South Korea’s Samsung. Intel’s “strategic use of outside foundries is an under-appreciated fact”, Gelsinger said.

Shares in TSMC and Samsung fell by as much as 3.9 per cent and 1.3 per cent, respectively, during Asian trading on Wednesday.

Its new foundry service, to be led by Randhir Thakur, will build chips in the US and Europe — an important development given the concentration of where chips are built today.

Gelsinger cited figures giving Asia an 80 per cent market share for the foundry industry — which he expects to be a $100bn market by 2025. The US has a 15 per cent share and Europe has 5 per cent.

Intel said it planned to become “a major provider of foundry capacity” in both the US and Europe, with additional plans to be announced “within a year.”

Gelsinger mentioned wanting to go to Qualcomm, a chip designer, to say: “Hey, let’s find ways to leverage our technologies in ways that weren’t possible before, and can we become your foundry partner?”

He added: “We also will pursue customers like Apple,” which in June announced a major shift away from relying on Intel to instead design its own chips for Mac products, which are then manufactured by TSMC.

Intel also said its much-delayed, next-generation 7 nanometre manufacturing process, called Meteor Lake, was “progressing well” and would reach a milestone next quarter. “We’ve righted the ship and 7nm is on a good course,” Gelsinger said.

Daniel Newman, analyst of Futurum Research, said Intel “is steadfast on not repeating the mistakes of the past few years with delays and production issues, so any timeline commitments coming from the company should be very accurate as any timeline faltering won’t be well received by the market”.

The chipmaker’s plans were announced in a pre-taped webinar with a live question-and-answer session that included support from the chief executives of Microsoft and IBM.

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