Stephen Nellis
SANTA CLARA, California (Reuters) – Intel plans to spend $100 billion in four U.S. states to build and expand factories after receiving $19.5 billion in federal grants and loans – and hopes to receive another $25 billion in tax breaks.
The centerpiece of Intel’s (NASDAQ:) five-year spending plan is transforming empty fields near Columbus, Ohio, into what CEO Pat Gelsinger described to reporters Tuesday as the “largest artificial intelligence chip manufacturing facility in the world,” starting soon. like 2027.
On Wednesday, the US government announced federal funds for Intel under the CHIP Act.
Intel’s plan would also include revamping facilities in New Mexico and Oregon and expanding operations in Arizona, where longtime rival Taiwan Semiconductor Manufacturing Co is also building a huge plant that it hopes will receive funding from President Joe Biden’s efforts to bring advanced semiconductor manufacturing back to the United States. . United States.
The funds provided as part of Biden’s plan to revive chip manufacturing more broadly will go a long way toward helping Intel fix its wounded business model.
For decades, the company led the world in making the fastest and smallest semiconductors, selling them at a premium and funneling profits into more research and development to stay ahead of the competition.
But in the 2010s, Intel lost that manufacturing advantage to TSMC, and its profits plummeted as it cut prices to maintain market share with inferior products.
Gelsinger announced plans to return Intel to the No. 1 position in 2021, but said he would need government support to make the plan profitable.
With that help in hand, it’s time for Intel to spend it.
Gelsinger said about 30% of the $100 billion plan would be spent on construction costs such as labor, pipes and concrete. The remainder will be used to buy chip manufacturing tools from firms such as ASML (AS:), Tokyo Electron, Applied Materials (NASDAQ:) and KLA, among others.
The tools will help launch the Ohio site by 2027 or 2028, although Gelsinger warned the timeline could slip if the chip market declines. In addition to grants and loans, Intel plans to make most of its purchases using existing cash flow.
“It will still take three to five years for Intel to become a serious player in the foundry market” for advanced chips, said Kingai Chan, an analyst at Summit Insights.
However, he warned that more investment would be needed before Intel could overtake TSMC, adding that the Taiwanese firm could remain the leader “for some time.”
Gelsinger previously said a second round of U.S. funding for chip factories would likely be needed to restore the U.S.’s position as a leader in semiconductor manufacturing, which he reiterated on Tuesday.
“It took us three-plus decades to lose this industry. It won’t come back in three to five years of CHIPS Act funding,” Gelsinger said, calling low-interest financing “smart capital.”
But even with the federal government’s support, Intel must quickly prove it can compete with its Taiwanese and Korean rivals, said Ben Bajarin, CEO of research firm Creative Strategies.
“It will be important to know how long it will take for Intel’s smart capital to become self-sustaining,” Bajarin said.
Overall, however, Intel will be the most important chipmaker for U.S. interests even as competitors build in the country, said Jimmy Goodrich, semiconductor export and technology adviser at RAND Corp.
“Only Intel has a workforce, technology and supply chain that is heavily focused on the US. So while what TSMC and Samsung (KS:) are doing here is important and should be applauded, it is also important to have a strong team.” ” He said.