March 20, Santa Clara, California – After obtaining $19.5 billion in federal grants and loans, Intel (INTC.O), opens a new tab and is planning a $100 billion spending binge across four U.S. states to build and expand facilities. The company also expects to gain an additional $25 billion in tax benefits.
The main project in Intel‘s five-year budget plan is to develop vacant fields close to Columbus, Ohio, into “the largest AI chip manufacturing site in the world,” according to CEO Pat Gelsinger’s description to reporters on Tuesday. Work on the project may begin as early as 2027.
On Wednesday, the United States government declared that Intel will receive public subsidies under the CHIPS Act.
Along with these upgrades, Intel’s plan calls for expanding operations in Arizona and renovating sites in New Mexico and Oregon. Longstanding rival Taiwan Semiconductor Manufacturing Co (2330. TW) is also building a massive factory there, which it hopes will be funded by President Joe Biden’s push to bring advanced semiconductor manufacturing back to the United States.
Biden’s proposal to revive the semiconductor industry more broadly would give financial resources that will significantly aid Intel in repairing its damaged business model.
The company set the standard for decades by producing the smallest and fastest semiconductors in the world, selling them for a premium, and reinvesting the proceeds in further R&D to maintain its lead.
However, TSMC overtook Intel in production in the 2010s, and as a result, Intel’s profit margins collapsed as it slashed prices to maintain market dominance with subpar products.
In 2021, Gelsinger unveiled a strategy to push Intel back to the top, but he stated that for the plan to be successful, the government must provide funding.
Now that Intel has that support, it’s time for them to invest.
According to Gelsinger, about thirty percent of the $100 billion plan will go into labor, pipes, and concrete during construction. The remainder will be used to purchase chip-making equipment from companies like Tokyo Electron (8035.T), Applied Materials (AMAT.O), ASML (ASML.AS), opens new tab, and KLA (KLAC.O), opens new tab, among others.
With the use of such technologies, the Ohio location should be operational by 2027 or 2028, though Gelsinger cautioned that this deadline may be missed if the semiconductor industry collapses. Intel intends to use its current cash flows for the majority of its purchases, excluding grants and loans.
According to Summit Insights analyst Kinngai Chan, “It will still take three to five years for Intel to become a serious player in the foundry market” for advanced processors.
He did, however, caution that additional funding would be required before Intel could pass TSMC and said that the Taiwanese company might hold the top spot for
some time to come
Reiterating his earlier remarks on Tuesday, Gelsinger stated that further U.S. financing for semiconductor plants will probably be required to restore the country’s position as a global leader in the industry.
“We lost this industry over more than three decades. According to Gelsinger, who called the low-interest money “smart capital,” it won’t reappear in three to five years of CHIPS Act spending.
Nevertheless, Ben Bajarin, CEO of research company Creative Strategies, stated that Intel must sooner rather than later demonstrate that it can compete with its Korean and Taiwanese rivals even with government support.
It will be important to know how much longer ‘smart capital’ is needed for Intel before they can stand on their own
Bajarin
Overall, however, even with competitors expanding domestically, Jimmy Goodrich, a technical consultant and semiconductor exporter for RAND Corp., believed that Intel would remain the most significant chipmaker for American interests.
Only Intel has a supply network, labor force, and technology that are primarily focused on the United States. Therefore, having a strong local team is just as vital as what TSMC and Samsung are doing here, which is something that should be applauded,” he stated.
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