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Picture: BLOOMBERG
Picture: BLOOMBERG

Intel plans to spend $20bn on a chipmaking hub on the outskirts of Columbus, Ohio, which the company expects to grow to be the world’s biggest silicon-manufacturing site.

The chipmaker will begin construction of two fabrication plants on a 1,000-acre site in New Albany, which it expects to be operational by 2025, Ohio governor Mike DeWine said in a statement on Friday. Intel’s plans for its most advanced technologies will result in an increased American share of the global chip supply chain, DeWine said. 

The project will be the largest single private sector company investment ever in Ohio, according to the governor, and will generate more than 20,000 jobs in the state, including 3,000 direct Intel jobs earning an average of $135,000 a year, plus benefits. 

Intel’s leader has been vocal about the need to build more chip factories in the US and Europe, areas where manufacturing of the vital electronic components has declined precipitously. CEO Pat Gelsinger has argued that a rebalancing of production is needed to reverse its increasing concentration in East Asia. He has pointed to the pandemic-induced supply chain crunch and increasing geopolitical tension between China and the US as evidence that Western governments need to find cash to persuade chipmakers to relocate. 

Intel is committing to building in Ohio using its own funds and hoping that the US federal government will deliver on planned resources aimed at supporting an expansion of semiconductor manufacturing, Gelsinger said in an interview. Congress is currently considering funding of the CHIPs Act, a proposal to offer about $50bn in incentives to companies willing to locate chip production in the US.

“We are putting our chips on the table,” he said. A build out of the new Ohio location “will go bigger and faster with the support of the CHIPs Act.”

Intel plans to spend $20bn on on a chipmaking hub on the outskirts of Columbus, Ohio, which the company expects to grow to be the world’s biggest silicon-manufacturing site. Graphic: BLOOMBERG
Intel plans to spend $20bn on on a chipmaking hub on the outskirts of Columbus, Ohio, which the company expects to grow to be the world’s biggest silicon-manufacturing site. Graphic: BLOOMBERG

Gelsinger said Intel chose the location from among 30 to 40 prospective sites. The state was competitive in the incentives and other support it’s willing to offer, he said. The availability of potential employees from local universities, military veterans and the relatively cheap cost of labour at a time of wage inflation were also factors, he said. State officials haven’t disclosed the incentives offered to Intel to land the project.

Adding Ohio to its list of locations, not traditionally an area associated with the technology industry, contributes to the greater geographical diversity that Gelsinger has championed. Intel is also looking at sites in Germany, Italy and France for new factories, test and assembly plants, and research and design centres, Bloomberg has reported.

Putting some of Intel’s billions of dollars in capital expenditure to work in a new location for the company — it currently has plants in Oregon, Arizona and New Mexico — may help bolster Gelsinger’s appeal for taxpayer money. That in turn will help cushion some of the drag on profitability caused by his ambitious plans to restore Intel’s manufacturing prowess and muscle in on the business of outsourced chipmaking, an area dominated by Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung. .

This year Intel’s CEO has budgeted a record amount of spending on new factories and equipment. But, highlighting the huge and growing cost of state-of-the-art chipmaking, TSMC and Samsung are planning to raise the stakes even higher. 

TSMC has set aside more than $40bn for capital expenditures this year. That compares with Intel’s plan to spend up to $28bn. South Korea’s Samsung will likely announce its plans on January 27 in its earnings release. Analysts, on average, predict a company wide budget of about $36bn.

“We continue to view Intel’s investment in US production as a costly but necessary part of their IDM 2.0 strategy.” Wells Fargo analyst Aaron Rakers said in a note to clients. “We expect investors to be focused on the gross margin implications of what appears to be a significantly increasing capital intensity at Intel over the coming years.”

Intel’s gross margin, the percentage of sales remaining after deducting the cost of production, has narrowed to well below the 60% level that it had delivered for years, an indication of its former dominance of the industry. Gelsinger has said that’s because the company is in “investment mode” and he predicted that the indicator would expand again when the chipmaker returns to technology leadership.

Bloomberg. More stories like this are available on bloomberg.com

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