A semiconductor wafer during an Intel event before an IFA International Consumer Electronics Show.
Krisztian Bocsi | Bloomberg | Getty Images
Intel announced on Tuesday that it will spend $ 20 billion to build two new chip factories, called fabs, in Ocotillo, Arizona.
Intel’s shares rose up to 5% with news from the extended trading session on Tuesday.
The announcement, coinciding with the first public comments from new CEO Pat Gelsinger since taking office, signals that Intel will continue to focus on manufacturing during changes in the industry that have led competitors to increasingly separate design and manufacturing from chips.
The news comes during a global chip shortage that is affecting industries, from automobiles to electronics, and fears that the United States is lagging behind in semiconductor manufacturing.
“Intel is and will continue to be a leading developer of process technology, a major semiconductor manufacturer and a leading global supplier of silicon,” said Gelsinger.
Intel also said it will act as a “foundry”, or manufacturing partner, for other chip companies that focus on semiconductor design, but need a company to actually manufacture the chips. Intel said its foundry subsidiary will be called Intel Foundry Services and will be led by Randhir Thakur, Intel’s current senior vice president.
Gelsinger said the foundry business will compete in a potentially estimated $ 100 billion market by 2025 and will manufacture a variety of chips, including chips based on ARM technology, which are used in mobile devices, and have historically competed with the Intel’s favorite x86 technology.
A slide displayed by Intel suggested that companies like Amazon, Google, Microsoft and Qualcomm could be customers of the business. Microsoft CEO Satya Nadella appeared at Gelsinger’s lecture in a demonstration of support for Intel’s decision.
Why Intel is opening new factories
Intel’s commitment to manufacturing has implications for national security. Intel said it is entering into a partnership with IBM to improve chip logic and packaging technologies, which “will increase the competitiveness of the U.S. semiconductor industry and support major US government initiatives”
Intel currently operates four factories, called “wafer factories”, in the United States. In addition to its expanded Arizona facility, it also has factories in Massachusetts, New Mexico and Oregon. It also manufactures chips in Ireland, Israel and has a single factory in China.
The Intel smelter will offer an alternative based in the United States and Europe for Asian chip factories.
In February, President Joe Biden said that domestic semiconductor manufacturing is a priority for his government. His government hopes to make up for the chip shortage and address lawmakers’ concerns that outsourcing chip manufacturing has made the United States more vulnerable to supply chain disruptions.
In an executive action, Biden initiated a 100-day review that could boost American chip companies with additional government support and new policies.
“Today’s Executive Order, combined with full funding for the CHIPS Act, can help level the playing field in the global competition for leadership in semiconductor manufacturing, allowing American companies to compete on an equal footing with heavily subsidized foreign companies. by their governments, “Intel said at the time in response to the executive order.
Gelsinger took over Intel on February 15 from former CEO Bob Swan. Although he was recently the CEO of VMWare, he started his career at Intel and his appointment was considered a homecoming.
He took over a company that faced several challenges. Intel had lost its advantage in semiconductor manufacturing to rivals in Asia, mainly TSMC. Intel’s most advanced chips use a 14 nanometer or 10 nanometer process. Intel designs the chips and manufactures them in its own factories, called factories.
But competitors, including Intel customers like Apple and rivals like AMD, just design the processor and manufacture it at an external chip factory. These chip factories, like TSMC and Samsung, use a more advanced 5 nanometer process, which is superior because more transistors can fit on the same chip size, increasing power and efficiency.
“We will be looking for customers like Apple” for Intel’s foundry business, said Gelsinger.
Gelsinger said on Tuesday that its 7-nanometer chips are on track to reach a milestone in the second quarter and that it plans to manufacture most of its products itself. Still, Intel will increase its use of third-party foundries, including TSMC, Samsung and GlobalFoundries, he said.
Intel also announced a year-round guidance. The company said it expects $ 4.55 in adjusted earnings per share at $ 72 billion, below Refinitiv’s estimates of $ 4.77 in adjusted earnings per share and $ 72.94 billion in revenue in revenue. Intel said it expects $ 19 billion to $ 20 billion in capital expenditures for the year. Analysts polled by FactSet had expected $ 14.59 billion.
CNBC’s Jordan Novet contributed to this story.