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Intel Spends Billions To Revive Manufacturing, Chase TSMC

(Bloomberg) – Intel Corp. unveiled an ambitious bid to regain its manufacturing edge by spending billions of dollars on new factories and creating a foundry business that will make chips for other companies. The stock rose about 5%. The plan, launched Tuesday by new CEO Pat Gelsinger, is an aggressive move that puts Intel in direct competition with Taiwan Semiconductor Manufacturing Co., the world’s most advanced chip maker. Gelsinger will initially spend $ 20 billion at two new plants in Arizona to support Intel’s attempt to get into the foundry business. Intel plans even more factories in the US, Europe and elsewhere. The CEO promises that the majority of the company’s chips will be made in-house. Read More: Intel CEO Charts Comeback in Foundry Model TSMC Mastered Intel has dominated the $ 400 billion industry for decades by producing the best designs in its own state-of-the-art factories. That strategy collapsed in recent years when the company missed deadlines for new production technologies while most other chipmakers turned to foundry specialists for their designs. Intel’s factories now follow TSMC and Samsung Electronics Co., who manufacture chips for Intel competitors such as Advanced Micro Devices Inc. and large Intel customers including Amazon.com Inc. and Apple Inc. The plan will give Intel’s “unique capability.” give to have leadership products with the leading supply chain and leadership cost structure in every part of our business, “said Gelsinger, who rejoined the company earlier this year. “We are on the way to the races, we will be at eye level over time and then move on to sustainable leadership.” What Bloomberg Intelligence Says BloomIntel’s new CEO’s plan to revive chip manufacturing – as a service to cloud customers and its own rivals – will depend on its ability to execute. Dealing with the challenges could push the chip giant’s earnings growth past the low single digits after 2021 and potentially boost P / E ratios in low teens, though margins may remain mixed. – Anand Srinivasan and Marina Girgis, analysts Intel’s Moonshot chip is about superiority, not profit: Tim CulpanGelsinger’s predecessor was considering abandoning Intel in-house manufacturing entirely, and some investors wanted the company to cover costs by outsourcing production lowers. The new plan abandons these approaches and represents an expensive, multi-year commitment to Intel’s manufacturing legacy. During a presentation on Tuesday, Intel forecast investments of up to $ 20 billion in 2021 compared to $ 14 billion in the previous year. The company again forecast sales that year that fell short of Wall Street’s estimates. The company’s problems came to a head last year with a delay in the last 7 nanometer production process. This followed similar missed deadlines for the previous 10 nanometer standard. Read more: Intel ‘Stunning Failure’ Heralds the End of the Era for the US Chip Sector On Tuesday, Intel said that the latest manufacturing technology is now well advanced, supported by a simplified process. “Though stumbling over 10 and 7 was embarrassing for a company like ours, it’s fixed,” Gelsinger said in an interview. “We understand where the problem is.” Intel will use TSMC chip foundries for some of its needs, including parts of its key products, Gelsinger said. While this is a step beyond what it is now, the company will continue to manufacture the majority of its products in-house. The world’s largest chip maker creates a new entity called Intel Foundry Services that aims to “become a major player in the US and Europe. Foundry capacity to meet the incredible global demand for semiconductor manufacturing. To support these efforts, Intel will begin a “significant” expansion of its manufacturing capacity, starting with two new plants adjacent to its Chandler, Arizona location. TSMC is also considering building a facility in the region. Intel will announce additional capacity expansions in the US, Europe and other global locations later this year. Based in Santa Clara, California, the company currently has factories in Ireland, Israel and China. TSMC and Samsung both eased after the news, while semiconductor equipment stocks rallied on expectations of soaring spending from Intel. Nikon Corp. increased by up to 13%, Lasertec Corp. rose 7.6% and Tokyo Electron posted a 4.9% increase in Tokyo on Wednesday morning. Gelsinger’s plan is a rally for those who want Intel – and the US – to reassert technology leadership. China is investing hundreds of billions of dollars in developing its own semiconductor industry, and the US government is once again urged to support domestic manufacturing. Read more: The world is dangerously dependent on Taiwan for semiconductors. Intel and the US can be compensated significantly though. Some analysts doubt the company can catch TSMC soon or ever. This requires a large investment. TSMC will spend up to $ 28 billion in 2021. That’s double what Intel spent last year. “We are excited to be working with the state of Arizona and the Biden administration to create incentives that will stimulate this type of domestic investment,” Gelsinger said in a statement. He later noted that Intel would pursue its plan with or without government incentives. Intel previously tried and failed to get into the foundry industry. These efforts failed because the manufacturing process was tied too closely to their own chip designs, which are mostly high-performance computer microprocessors. This made Intel factories unsuitable for other types of chips, especially smartphone components, which need to be more energy efficient. “Our attempts so far have been a bit half-hearted,” said Gelsinger. The new foundry unit will report directly to the CEO as a standalone company with its own profit and loss requirements, he added. Geleinger also addressed the potential for conflict between Intel’s own chip efforts and this new business. Under the plan, Intel’s factories will potentially provide manufacturing and licensing technology to companies that compete with their own products. Intel provides IFS with “serious” manufacturing capabilities and leading edge chip technologies, said the CEO. “Customers will get the best of what we have to offer,” he added. “We are approaching this much more aggressively and holistically.” Gelsinger makes further radical changes. IFS will manufacture chips for other companies based on Intel’s X86 technology. Until now, only AMD could create chips with this dominant computing standard. Intel will also compete standards from Arm Ltd. and adopt an open source alternative called RISC-V. Read more: The next revolution in Silicon Valley is Open Source SemiconductorsChip manufacturing is unique in that the process of manufacturing the tiny components has a major impact on the properties and performance of the final product. The best manufacturing technology downsizes the transistors on chips so that they can store more information, process data faster, use less power or be cheaper. Sales to Intel soared 8% to a record $ 77.9 billion in 2020 as the company filled orders for chips in needed computers during the pandemic, working and studying from home. This year, analysts are forecasting a decline in sales of 5%, the first decline since 2015. Read more: There is a lack of computer chips in the world. Here’s why: QuickTake (updates with stock price reaction in the fourteenth paragraph) For more articles like this, visit bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP