In the midst of a surging semiconductor market, Intel is set to see a decline in its business in 2022, falling to $76bn from $79bn in 2021. That was up just 1% on 2020.
The 2022 Investor Meeting outlined key elements of the company’s capital expenditure strategy and path to long-term growth. Despite unprecedented demand for semiconductors, the company has been knocked off the top spot for semiconductor shipments by Samsung and faces a re-surgent competitor in AMD, now combined with Xilinx.
The Smart Capital strategy is needed as the company has committed to net capex of approximately $27bn, with adjusted free cash flow expected to be negative $1 billion to $2 billion as a result. This follows announcements of fabs in Arizona and Ohio, with plans for plants in Europe as well.
The strategy sees Intel reducing its potential exposure to the coming over-capacity in the market. The initial focus of the capex investments is in building out “shells” of fabs. These have the longest lead time but are a relatively small part of the investment. Having available shell space gives the company flexibility in how and when it brings additional capacity online based on milestone triggers such as product readiness, market conditions and customer commitments it says, allowing the capex for equipment to be changed.
It has also signed a deal with a real estate investment company called Brookfield Asset Management to explore project finance options to help fund new Intel manufacturing sites and certain related renewable power opportunities. This would increase Intel capital flexibility and help accelerate Intel’s manufacturing build-out.
“This is a creative, first-of-a-kind model for the industry,” says the company, although it sounds very much like a sale and lease-back arrangement that is well established in other areas, including battery gigafactories. “The agreement also shows how government incentives can help to increase private capital for semiconductor manufacturing expansion,” it says.
It is continuing to talk to governments in the U.S. and Europe around incentives for domestic manufacturing capacity for leading-edge semiconductors following Chips Acts in both regions.
Intel Foundry Services is also talking to potential customers about making advance payments to secure capacity. This provides Intel with the advantage of committed volume, de-risking investments while providing ‘capacity corridors’, or guaranteed capacity. This reflects its experience with TSMC, which is building a leading edge fab in Taiwan for Intel chips.
“Intel intends to make effective use of external foundries, leveraging some of their unique capabilities to help deliver leadership products,” said the company.
“The continued proliferation of technology is driving sustained, long-term demand for semiconductors, creating a $1 trillion market opportunity by 2030,” said Pat Gelsinger, Intel chief executive officer. “With that opportunity in mind, today we outlined our strategy and roadmap for accelerating to 10%-12% year-over-year revenue growth by 2026 by doubling down on innovation, driving even deeper collaboration with our customers and partners, and leveraging our core strengths to successfully grow traditional markets and disrupt new ones. Our goals are ambitious, but I’m confident we have the right strategy and right team to achieve them and to deliver long-term value for our shareholders.”
The company is also changing its divisions, with an IPO of Mobileye planned and a focus on client, data centre, network and edge markets.
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