Intel prepares for $100 billion spending spree in four U.S. states By Reuters

By Stephen Nellis

SANTA CLARA, California (Reuters) -Intel is planning a $100 billion spending spree in four U.S. states to build and expand factories after securing $19.5 billion in federal grants and loans – and hopes to secure more $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 AI chip manufacturing site in the world.” , starting as soon as possible. like 2027.

The US government announced federal funding to Intel under the CHIPS Act on Wednesday.

Intel’s plan also includes renovating sites in New Mexico and Oregon and expanding operations in Arizona, where longtime rival Taiwan Semiconductor Manufacturing Co is building a huge factory that it hopes will get funding from the president’s push Joe Biden to bring advanced semiconductor manufacturing back to the world. United States.

The funds provided by Biden’s plan for a broader chip manufacturing resurgence will go a long way toward helping Intel repair its wounded business model.

For decades, the company has been a world leader in producing the smallest, fastest semiconductors, selling them at a premium and reinvesting profits into further research and development to stay ahead of the curve.

But Intel lost that manufacturing advantage in the 2010s to TSMC, and its profit margins plummeted as it cut prices to maintain market share with inferior products.

Gelsinger announced a plan in 2021 to return Intel to the No. 1 position, but said he will need government support to make the plan profitable.

With this assistance in hand, the time has come for Intel to spend.

Gelsinger said about 30% of the $100 billion plan will be spent on construction costs such as labor, piping and concrete. The rest will go towards purchasing chip-making tools from companies such as ASML (AS:), Tokyo Electron, Applied Materials (NASDAQ:), and KLA, among others.

Those tools will help bring the Ohio site online by 2027 or 2028, though Gelsinger warned that timeline could slip if the chip market collapses. In addition to grants and loans, Intel plans to make most of its purchases using existing cash flows.

“It will still take three to five years for Intel to become a serious player in the foundry market” for cutting-edge chips, said Kinngai Chan, an analyst at Summit Insights.

However, he warned that more investment will be needed before Intel can overtake TSMC, adding that the Taiwanese company could remain the leader for “some time to come.”

Gelsinger has previously said that a second round of U.S. funding for chip factories would likely be needed to re-establish the United States as a leader in semiconductor manufacturing, which he reiterated on Tuesday.

“It took us more than three decades to lose this industry. It’s not coming back in three to five years with CHIPS Act funding,” said Gelsinger, who called low-interest rate financing “smart capital.”

But even with federal support, Intel needs to prove it can compete with its Taiwanese and Korean rivals as soon as possible, said Ben Bajarin, CEO of analytics firm Creative Strategies.

“It will be important to know how long Intel will need ‘smart capital’ before it can stand on its own,” Bajarin said.

Overall, however, Intel would be the most important chipmaker to U.S. interests, even if rivals develop in the country, said Jimmy Goodrich, a semiconductor export and technology consultant at RAND Corp.

“Only Intel has a largely U.S.-centric workforce, technology and supply chain. So while what TSMC and Samsung (KS:) are doing here is important and should be welcomed, it is also It’s important to have a strong internal team,” he said.