Intel signs $30 billion financing partnership with Brookfield to finance chip factory expansion

Intel Corp.

INTC 0.78%

has formed an unusual $30 billion financing partnership with Brookfield Asset Management Inc.

BAM 0.53%

to help fund its massive factory expansion ambitions, signaling that some big investors are optimistic about long-term demand for semiconductors.

The deal with the publicly traded Canadian asset manager is the first of what could be a series of such arrangements sought by Intel to support Chief Executive Pat Gelsinger’s push to make the company a leading chip contract maker and regain the its manufacturing advantage over its competitors in Taiwan. and South Korea.

Under the deal, which company executives described as the first of its kind for the industry, Intel will finance 51 percent of the cost of building new chip manufacturing facilities in Chandler, Ariz., and will have a controlling interest in the financing facility which would own the new factories, Intel Chief Financial Officer David Zinsner said. Brookfield will own the remaining equity and the companies will split the revenue generated by the plants, he added.

Scott Peak, managing partner at Brookfield’s infrastructure group, said such deals are common in industries such as energy and telecommunications and are now making inroads into the chip business because of its growing capital needs. Brookfield, which has more than $750 billion in assets under management, sees the Intel deal as a good fit with the company’s experience in large and complex deals, he said.

CEO Pat Gelsinger has pushed for Intel to become a top chipmaker and regain its manufacturing edge over rivals in Taiwan and South Korea.


Photo:

Tom Williams/Zuma Press

Mr. Geslinger and other industry officials said they expect annual semiconductor sales to roughly double by the end of the decade — topping $1 trillion — even if near-term softness in demand hurts chip industry profits.

Intel last year announced construction of two new plants in Arizona, where it already makes chips, calling it a $20 billion expansion. However, Mr Zinsner said the figure was an early estimate and inflation had since added to the cost. Intel has also said it could spend up to $100 billion each on new factory complexes in Ohio and Germany.

As chips have become more advanced and their circuitry has shrunk to the millimeter width of a human hair, they have become more expensive to manufacture. A large, advanced chip factory today can cost more than a state-of-the-art aircraft carrier or nuclear power plant, according to an analysis by the Boston Consulting Group.

Mr. Zinsner said rising chip-making costs and Intel’s ambitions under Mr. Gelsinger to rapidly grow its manufacturing footprint with multiple projects prompted the company to seek new pools of capital instead of relying on more traditional sources of financing, such as banks. loans or bonds. discounts.

“We’ve fallen behind, and that requires a pretty aggressive investment cycle over the next few years, which is not where Intel usually is,” he said.

Intel’s big plans have weighed on investor sentiment. Its share price ended Monday down more than 45 percent since Mr. Gelsinger detailed his chipmaking ambitions last year, compared with an 8 percent decline in the PHLX Semiconductor index.

Mr. Zinsner said one of the benefits of working with Brookfield is the off-balance sheet nature of the financing. It could also help the company finally meet its commitment to deliver free cash flow at 20% of revenue.

Intel isn’t the only one with aggressive investment plans in chips. Last year Taiwan Semiconductor Manufacturing Co.

the world’s largest contract chipmaker said it would spend $100 billion over three years to boost production and South Korea’s Samsung Electronics Co.

another major chip maker, unveiled a three-year plan to spend more than $205 billion.

Intel’s big chip investment plans have weighed on investor sentiment, driving down its share price.


Photo:

Jason Henry for the Wall Street Journal

Intel is counting on government aid to cover some costs. Political leaders in both the US and Europe have signaled their willingness to develop chip production locally and counter the industry’s shift to Asia, where manufacturing has traditionally been cheaper.

In the US, whose share of the chip market has fallen to about 12%, according to the Boston Consulting Group, President Biden this month signed legislation allocating more than $50 billion to domestic chip manufacturing and research. Intel and other chipmakers lobbied hard for the bill. The European Union is considering incentives to double its share of global chip production to 20% by 2030.

Intel’s deal with Brookfield is set to close by the end of this year, Mr. Zinsner said, adding that he was confident the company would do more such deals under its so-called semiconductor co-investment program as it builds factories elsewhere.

President Biden on Tuesday signed into law the Chips and Science Act of 2022, which directs financial assistance to build and expand semiconductor manufacturing facilities and other programs. Photo: Evan Vucci/AP

Write to Asa Fitch at asa.fitch@wsj.com

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