Intel Turns To Private Equity To Help Pay For New Factories

Intel is turning to private equity to bankroll its much-hyped chip foundry expansion.

The x86 giant said this week it and Brookfield Asset Management have agreed to scrape together $30 billion to build two fabs on the chipmaker's Arizona campus. We're told to expect more of these sorts of partnerships, which will be organized by Intel's newly launched Semiconductor Co-Investment Fund Program (SCIP).

“The semiconductor industry is among the most capital intensive industries in the world,” Intel CFO David Zinsner said during an investor call Tuesday. “This program opens the door to a new source of capital, which we estimate in size of $2 trillion providing ample capacity for additional programs with multiple partners over time.”

According to Zinsner, the program is part of Intel’s strategy to ramp up its contract manufacturing capacity in a sustainable fashion.

In addition to investments from private equity, Intel expects customer commitments and government subsidies to make up “conservatively” 10 percent of its capex expenditures over the next five years. Zinsner hopes to grow that figure to 20 to 30 percent.

Brookfield offers up $15 billion for cut of Arizona fabs

Brookfield Asset Management, a Canada-based private equity firm, has worked with several capex-intensive businesses, including Amazon, T-Mobile, BASF, and Digital Realty to name a few. The investment biz billions will now fund Intel's previously announced Arizona fab expansion.

The twin facilities were the first new fabs announced under Intel’s Integrated Design Manufacturing 2.0 initiative – in which Intel hopes to, among other things, manufacture chips under contract for anyone with money, a la TSMC and Globalfoundries – which were revealed in the early weeks of Pat Gelsinger’s tenure as CEO. At the time Intel said the facilities would cost approximately $10 billion a piece to bring online, and that has now risen considerably.

"Our prior number for the new Arizona investments was at the low end of our range based on a generalized scope and a desire to not overstate our future investment so early in the planning process; however, as in many sectors, we are seeing costs rise significantly," Intel told The Register. "As we continue to refine our estimates, we currently believe the investment could be up to $30 billion, accounting for the impacts of inflation, ongoing supply chain challenges and increased equipment costs."

Under the deal, Brookfield will put up approximately $15 billion for a 49 percent stake in the facilities. Intel (2021 net profit: $20 billion) will maintain majority ownership and operational control over the facilities.

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“This is definitely welcomed news for Intel following a dismal quarterly earnings where they saw significant deceleration in sales and market share loss in enterprise high performance compute,” CCS Insights analyst Wayne Lam told The Register in an email.

Lam expects the partnership will provide Intel the flexibility they need to continue building fabs and equipment by deferring a significant chunk of capex.

“The big question I have is how the deal is structured specifically, how Brookfield will realize gains on their investment,” Lam said. “Do they share in the Chips Act funding? Or some type of profit sharing?”

Pressed by analysts on the particulars of the deal, Zinsner cited a nondisclosure agreement, offering only this: “This is a lot like any other transaction that you see Brookfield making in infrastructure like investments,” he said. “They expect a certain level of return as a result of that.”

Empty buildings and external fabs

Beyond funding, Zinsner touched on Intel’s strategy for building out its foundry capacity in an economically sustainable fashion.

This includes building empty buildings — or as Intel prefers to call them shells — that can be equipped at a later date.

“We’re aggressively investing in shell space to give ourselves flexibility in how and when we bring additional capacity online based on milestone triggers such as product readiness, market conditions, and customer commitment,” Zinsner said. “Then we equip that space, which is the vast majority of cost, in a very disciplined way as needed based on customer demand.”

While Intel still produces the majority of its chips in house, Zinsner said the company would continue to contracted with outside factories, such as TSMC, to produce some of its products, like its GPUs.

“We’ll exercise external foundry capacity to increase flexibility, optimize our roadmap, and manage our capacity,” he said. “As we move to a disaggregated roadmap, we have even more options as we can make capacity decisions on a tile-by-tile basis based on both performance requirements and the capital envelope we want to derive.” ®