Intel Foundry Services will offer manufacturing capacity to companies that design chips but don't fabricate them.
David Silverman/Getty ImagesAmid a global shortage for semiconductors that has hit output of consumer goods ranging from autos to videogame consoles, Intel CEO Pat Gelsinger committed the chip maker to spending billions to expand its manufacturing footprint.
Despite recent issues with perfecting techniques for fabricating the most advanced chips, Gelsinger said Tuesday that Intel planned to spend $20 billion to build two manufacturing plants in Arizona, committing the largest U.S. chip maker by sales to improving and growing its manufacturing capabilities for years to come. The decision to do so comes only weeks into Gelsinger’s tenure as CEO, and amid increased U.S. government interest in securing domestic semiconductor manufacturing supply.
Intel also said it plans to launch a stand-alone business unit called Intel Foundry Services that will offer advanced manufacturing capabilities to companies that design chips but don’t fabricate the semiconductors themselves.
Gelsinger, who assumed the CEO duties Feb. 15, said Intel plans to expand its use of third-party manufacturing plants—including for products at the core of Intel’s business, such as chips for personal computers and data centers, beginning in 2023. Some investors had speculated that Intel might leave the chip-making side of the business altogether.
“It’s a commitment to long-term manufacturing but with a very unique and strategic view of how we can build the majority of our products internally, leverage external foundries, and become a foundry for the industry as well,” Gelsinger said in a phone interview with Barron’s.
“These three legs are something that I think is very differentiated and allows us to have leadership products, the cost leadership, but also have the supply resilience and flexibility that nobody else can offer in the industry.”
Before Tuesday’s announcement, analysts expected Intel to deploy $14.69 billion on capital expenses in 2021. The capex figure, which typically includes new manufacturing plants, amounts to roughly 20% of the company’s revenue. Analysts’ financial models included capital spending of $15.06 billion for 2022.
For Gelsinger, the decision to commit to using its own plants is a strategic necessity. Should Intel turn entirely to manufacturers such as Taiwan Semiconductor Manufacturing (TSM) or Samsung Electronics, it would place itself on the same financial playing field as rivals such as Advanced Micro Devices (AMD), which uses third-party foundries to make its chips.
“Not only am I going to double down, I’m going to open it up for the industry in what is a very large and lucrative foundry market,” Gelsinger said. The CEO added that making a big bet on manufacturing fits into the desire of various governments around the world to have a more balanced semiconductor supply chain.
Gelsinger reiterated earlier statements from Intel executives that the company’s issues with the most-advanced, 7-nanometer chips were behind it. He promised a completed design of a 7-nanometer chip, called Meteor Lake, by the second quarter of this year. Full production will begin in 2023; Gelsinger declined to be more specific about the timing.
The Intel CEO said that he expected the global chip shortage to last for at least two years, which is roughly the amount of time it takes to build new manufacturing plants. Gelsinger in part blames the Covid-19 pandemic for the issue.
“It accelerated the movement of essentially every aspect of human existence onto digital platforms,” he said. “More teleworking, more home education, more telemedicine, everything is becoming more digital in the face of a supply chain that was impinged by Covid as well.”
Intel’s decision to increase its U.S. investments arrives as lawmakers and the White House seek to secure additional domestic semiconductor manufacturing and research and development.
Intel stock closed down 3.3% to $63.48 during regular trading.
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