After receiving $19.5 billion in federal grants and loans and hoping for $25 billion in tax benefits, Intel (INTC.O) plans to invest $100 billion in four U.S. states to build and expand plants. Intel's five-year expenditure plan centers on turning barren fields near Columbus, Ohio, into "the largest AI chip manufacturing site in the world" by 2027.
Intel shares rose 4% in premarket trade after the U.S. government revealed CHIPS Act funds on Wednesday. Intel will also renovate sites in New Mexico and Oregon and expand operations in Arizona, where longtime rival Taiwan Semiconductor Manufacturing Co (2330.TW), is building a massive factory it hopes will be funded by President Joe Biden's push to bring advanced semiconductor manufacturing back to the U.S.
Biden's cash for a chipmaking renaissance will help Intel recover its business model. Intel led the world in manufacturing the fastest and smallest semiconductors for decades, selling them at a premium and investing the proceeds in R&D.
In the 2010s, Intel lost its manufacturing edge to TSMC and slashed prices to maintain market share with inferior devices, lowering its profit margins. In 2021, Gelsinger presented a strategy to bring Intel to No. 1, but he wanted government backing to make it profitable.
Gelsinger estimated that labor, pipe, and concrete will account for 30% of the $100 billion plan. The rest will be spent on chipmaking tools from ASML (ASML.AS), Tokyo Electron (8035.T), Applied Materials (AMAT.O), and KLA (KLAC.O), among others.
Gelsinger said those capabilities will assist open the Ohio plant by 2027 or 2028, although the semiconductor market might slow the timeframe. Beyond scholarships and loans, Intel will buy mostly with cash. Gelsinger repeated on Tuesday that a second round of U.S. chip factory funding may be needed to reestablish the US as a semiconductor manufacturing leader.
To lose this industry took over three decades. Gelsinger called the low-interest-rate money "smart capital" and said it wouldn't return in three to five years of CHIPS Act spending. Ben Bajarin, CEO of Creative Strategies, said Intel must prove it can compete with Taiwanese and Korean rivals quickly, even with federal support. "It will be important to know how much longer 'smart capital' is needed for Intel before they can stand on their own," he said.
According to RAND Corp. semiconductor export and technology adviser Jimmy Goodrich, Intel would remain the most important chipmaker for U.S. interests even as rivals develop in the country. Intel alone has a U.S.-centric staff, technology, and supply chain. "TSMC and Samsung's work is commendable, but a strong home team is also crucial," he said.
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