Intel Corp. announced a first-of-its-kind Semiconductor Co-Investment Program (SCIP) that introduces a new funding model to the capital-intensive semiconductor industry. As part of its program, Intel has signed a definitive agreement with the infrastructure affiliate of Brookfield Asset Management, one of the largest global alternative asset managers, which will provide Intel with a new, expanded pool of capital for manufacturing build-outs.
SCIP is a key element of Intel’s Smart Capital approach, which aims to provide innovative ways to fund growth while creating further financial flexibility to accelerate the company’s IDM 2.0 strategy. Intel’s agreement with Brookfield follows the two companies’ memorandum of understanding announced in February 2022. Under the terms of the agreement, the companies will jointly invest up to $30 billion in Intel’s previously announced manufacturing expansion at its Ocotillo campus in Chandler, Arizona, with Intel funding 51% and Brookfield funding 49% of the total project cost. Intel will retain majority ownership and operating control of the two new leading-edge chip factories in Chandler, which will support long-term demand for Intel’s products and provide capacity for Intel Foundry Services (IFS) customers. The transaction with Brookfield is expected to close by the end of 2022, subject to customary closing conditions.
“This landmark arrangement is an important step forward for Intel’s Smart Capital approach and builds on the momentum from the recent passage of the CHIPS Act in the U.S.,” said David Zinsner, Intel CFO. “Semiconductor manufacturing is among the most capital-intensive industries in the world, and Intel’s bold IDM 2.0 strategy demands a unique funding approach. Our agreement with Brookfield is a first for our industry, and we expect it will allow us to increase flexibility while maintaining capacity on our balance sheet to create a more distributed and resilient supply chain.”
Sam Pollock, CEO of Brookfield Infrastructure, said, “By combining Brookfield’s access to large-scale capital with Intel’s industry leadership, we are furthering the advancement of leading semiconductor production capabilities. Leveraging our partnership experience in other industries, we are pleased to come together with Intel in this important investment that will form part of the long-term digital backbone of the global economy.”
Benefits of the transaction
Intel’s partnership with Brookfield is expected to enhance the company’s strong balance sheet by allowing Intel to tap into a new pool of capital below its cost of equity while protecting its cash and debt capacity for future investments and continuing to fund a healthy and growing dividend. Over the next several years, the structure is expected to provide a $15 billion cumulative benefit to Intel’s adjusted free cash flow and is expected to be accretive to Intel’s earnings per share during the construction and ramp phase. SCIP provides Intel the ability to replicate the co-investment model with other partners for other build-outs globally.
SCIP is an important component of Intel’s overall Smart Capital approach, which is designed to allow the company to adjust quickly to opportunities in the market, while managing its margin structure and capital spending. Through SCIP, Intel is accessing strategically aligned capital to increase its flexibility and help efficiently accelerate and scale its manufacturing build-outs. This type of co-investment also shows how private capital is unlocked and becomes a force multiplier for government incentives for semiconductor manufacturing expansion.
In addition to SCIP, Intel said the other key elements of Smart Capital include:
Smart capacity investments: Intel is aggressively building out relatively low-cost shell space, which 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. In 2021, approximately 35% of Intel’s capital expenditures was spent on infrastructure.
Government incentives: Intel is continuing to work with governments in the U.S. and Europe to advance incentives for domestic manufacturing capacity for leading-edge semiconductors. Considerable progress has been made over recent months, as President Biden signed into law the CHIPS and Science Act of 2022 that includes funding for $52 billion in incentives for the U.S. semiconductor industry; the U.S. Congress is making strides with the FABS Act, which will establish a semiconductor investment tax credit in the U.S.; and the European Chips Act has added 15 billion euros to an existing 30 billion euros in public investments to build new infrastructure, among other advancements.
Customer commitments: IFS is working closely with potential customers, and several have indicated willingness to make advance payments to secure capacity. This provides Intel with the advantage of committed volume, de-risking investments while providing capacity corridors for its foundry customers.
External foundries: The company intends to continue its use of external foundries where their unique capabilities support Intel’s leadership products.
“Intel’s Smart Capital actions provide Intel with greater flexibility, reduce overall gross capital needs and act as a tailwind to adjusted free cash flow and gross margin. We expect that SCIP, combined with the other pillars of our Smart Capital approach, will allow us to significantly accelerate our transformation and help deliver the more globally balanced supply chain the world needs,” Zinsner concluded.