This is Santa Clara, California. Intel wants to spend $100 billion in four U.S. states to build and expand factories. It has already gotten $19.5 billion in government grants and loans, and it hopes to get another $25 billion in tax breaks.
Intel’s five-year spending plan is centered on turning empty fields near Columbus, Ohio, into what Chief Executive Pat Gelsinger told reporters on Tuesday would be “the largest AI chip manufacturing site in the world” for as early as 2027. Under the CHIPS Act, the U.S. government told Intel on Wednesday that it would be getting public funds.
Intel’s plan also includes fixing up sites in New Mexico and Oregon and growing its business in Arizona. Taiwan Semiconductor Manufacturing Co, a longtime competitor in the chip industry, is also building a huge factory there and hopes that President Joe Biden’s push to bring advanced semiconductor manufacturing back to America will help it get the money it needs.
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Biden’s plan to bring about a broader chip-making renaissance will free up a lot of government funds that will help Intel fix its broken business model.
Intel was the world leader for decades in making the smallest and fastest semiconductors. They sold these chips for a higher price and put the extra money they made back into research and development to stay ahead of the competition.
But Intel stopped being the best at making things in the 2010s, and as it cut prices on lower-quality goods to keep market share, its profit margins dropped. Gelsinger said he had a plan to make Intel number one again in 2021, but he said the plan would not be profitable without help from the government.
Now that Intel has that help, it’s time for them to spend. Gelsinger said that about 30% of the $100 billion plan will go toward building costs like workers, pipes, and concrete. The last 70% will be used to buy chip-making tools from companies like KLA, ASML, Tokyo Electron, Applied Materials, and others.
Because of these tools, the Ohio site should be online by 2027 or 2028. However, Gelsinger said the date could change if the chip market goes down. In addition to handouts and loans, Intel plans to use its own cash flow to pay for most of the purchases.
Gelsinger has said more than once that the United States will likely need to fund chip factories again in order to become a star in semiconductor manufacturing again. On Tuesday, he said the same thing again.
“We lost this business for more than 30 years.” “It’s not going to come back in three to five years of CHIPS Act” funds, Gelsinger said. He called the low-interest funding “smart capital.”
But Ben Bajarin, CEO of analyst company Creative Strategies, said that Intel needs to show that it can compete with its Taiwanese and Korean rivals as soon as possible, even with help from the government.
“It will be important to know how much longer ‘smart capital’ is needed for Intel before they can stand on their own,” said Bajarin.
One expert at RAND Corp, Jimmy Goodrich, said that even if competitors built chip factories in the U.S., Intel would still be the most important chipmaker for American interests.
“Only Intel has a workforce, technology, and supply chain that are mostly based in the United States.” He said, “What TSMC and Samsung are doing here is good and important, but it’s also important to have a strong home team.”