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Intel's effort to build a foundry biz is costing far more – and taking far longer – than expected
If you wanna make money you've gotta spend money. And against Samsung it's gonna cost a lot
ANALYSIS Three years after CEO Pat Gelsinger announced Intel would create a foundry business that took on contract manufacturing gigs, Chipzilla has committed to more than $185 billion in spending across new and existing fab, packaging, and test sites.
Now with $8.5 billion in US CHIPS Act subsidies in hand and up to $11 billion of loans secured, Intel Foundry – an independently managed unit under the Intel umbrella – is pushing ahead with its plan to become the number two foundry operator behind TSMC by 2030.
In a report issued on Monday, Intel offered an update on how its ten largest projects are going – and it looks like it's going to be a little while longer before it's ready to leapfrog Samsung and give TSMC a run for its money.
US expansion gains momentum as costs rack up
US-based Intel has made domestic manufacturing a priority. So far that intention has seen it announce four fresh fab sites stateside – two in Arizona and a pair in Ohio.
The two facilities in Chandler, Arizona – Intel's Fab 52 and Fab 62 – have made the most progress since Gelsinger announced them in early 2021. As of December 2023, Intel revealed work on the fab's concrete superstructure had been completed. Construction crews are now working to install the automated material handling system, which Intel describes as an "automated highway" used to transport wafers.
The fabs are expected to come online later this year or early in 2025, and are slated to produce chips based on Intel's next-gen Angstrom era process tech – including its mass market 18A node.
Meanwhile, in Ohio – Intel's first new US fab site in more than 40 years – construction crews are busy digging. The foundry biz claims that in 2023 crews shifted more than four million cubic yards (3.53 million metric tons) of earth – the equivalent of 248,000 dump truck loads – and installed more than 32 miles (51.4 km) of conduit.
Much of the work this year will center on building out the fabs' utility level and bringing in "superloads" of manufacturing equipment necessary for the next phase of construction.
Intel's Ohio fabs are slated to come online in 2025. However, as we reported in February, it appears that delays to US CHIPS Act funding and changing market dynamics may have pushed completion dates into late 2026.
Beyond manufacturing delays, Intel faces several other challenges bringing these fabs online. First is rising construction costs – which have ballooned since Gelsinger first announced the Arizona and Ohio projects.
Intel's Arizona fabs were initially projected to cost about $10 billion apiece. But a little over a year later, the chip shop revealed the actual cost would be closer to $30 billion – and that it had brought in Brookfield Asset Management, a private equity firm, to help pay for the plants.
More recent reporting indicates the Arizona two fabs, along with upgrades to its existing Ocotillo manufacturing plant, will run roughly $32 billion. It's a similar story with the Ohio fabs, which were also slated to cost roughly $10 billion a pop. However as of early 2024, the estimate is closer to $28 billion.
To be clear, Intel isn't the only foundry operator dealing with rising costs. The expected scale – and by extension cost – of both TSMC and Samsung's Arizona and Texas fab sites have also exploded since their announcement.
Another challenge facing Intel and others building fabs in the USA is staffing. Shortages of skilled staff have forced delays for TSMC, while Intel is actively working to train personnel to run these facilities when they come online.
Last summer, the Xeon-slinger told us that the "US semiconductor industry could face a shortage of 70,000 to 90,000 workers over the next few years."
Wafer production is only part of a complex supply chain, which increasingly relies on advanced packaging technologies.
Along these lines, Intel has previously announced upgrades to its Rio Rancho, New Mexico facility –known as Fab 9 and Fab 11x. These upgrades – originally expected to cost $3.5 billion but now estimated to cost closer to $4 billion – aim to enable the facility to support advanced packaging in high volumes.
Headlines to check into to get a fuller picture
Intel's foundry business bled $7B in 2023 with more to come
Samsung snags $6.4B in CHIPS Act funds for Texas fabs
Intel scores $8.5B in government cheddar to supercharge fab builds
TSMC scores $11.6B funding infusion for Arizona fabs, now plans for third plant
Over the past few years, advanced packaging has emerged as a key technology for scaling compute beyond the reticle limit of a single silicon die. Technologies like Intel's EMIB 2.5D packaging and Foveros 3D packaging tech enable multiple dies to be stitched edge-to-edge or even stacked atop one another. We saw both technologies on display with Intel's GPU Max product family, better known as Ponte Vecchio.
With more chip shops (including AMD and Nvidia) embracing multi-die designs, the foundry challenger appears to be leaning on its tech to woo prospective customers away from TSMC – which is currently responsible for most advanced packaging not performed by Intel.
Intel celebrated the reopening of Fab 9 in January, and plans to install and qualify additional tools at it and Fab 11x later this year.
On the topic of advanced technologies, last northern Fall (Autumn) Intel broke ground on a new support building near its D1X fab in Hillsboro, Oregon. The R&D site will reportedly support the development of next-gen process tech.
When complete, the building will add an additional 35,000 square feet (3,251 sqm) of clean room space, and feature six docks to allow for faster installation of the latest tools at the fab. Over the next few years, Intel plans to invest $36 billion into its Hillsboro site.
Foreign investment abounds
Intel's foundry investments aren't limited to the US. Over the past few years, the chipmaker has invested heavily in upgrades to its Irish chip plants, announced new fab sites in Germany and Israel, and detailed assembly, test, and packaging facilities under development in Malaysia and planned for Poland.
Among the largest of these is the fab site in Magdeburg, Germany. It was announced in early 2022 as part of a €33 billion ($35.1 billion) investment in manufacturing across Europe, of which the German plant would account for approximately €17 billion.
The plant was expected to break ground in early-to-mid 2023 and begin producing components as soon as 2027. However, much like Intel's other fab projects to date, it quickly ran into trouble.
For one, the total cost of the facility continued to rise. In mid 2023, when the plant was expected to break ground, Intel had finally reached an agreement with the German government to subsidize costs by €10 billion ($10.6 billion) of the by then larger €30 billion ($31.9 billion) project.
The latest Intel update on construction progress contains little detail as to the status of the German build, but does mention an apprenticeship program to train local workers to run the facility when complete.
Intel's European expansion has, like its US developments, been plagued by staffing shortages. Intel needed about 3,000 staff to run the plant, but its three-year apprenticeship program reportedly had just two candidates enrolled for 2023, and 20 slated to start in 2024.
The reports raised concerns that unless Intel resolves this issue – either through additional training and incentives or through increased levels of automation – the plant could face additional delays before production commences.
As well as the Magdeburg plant, Intel is also working on a new fab at its existing campus in Haifa, Israel. Intel has operated out of Israel for 50 years and currently employs 11,000 people across four locations in the country.
The $25 billion Haifa project, detailed late last year, is slated to produce chips using extreme ultraviolet lithography (EUV) and is set to receive $3.2 billion in support from the Israeli government.
According to Intel, construction of Fab 38 – which is expected to come online sometime in 2028 – has commenced. However the report offers little detail. Considering the timeline of Intel's other projects, we'd wager that construction crews are probably still moving earth.
In addition to fabs, Intel has also made upgrades to existing facilities – including Fab 34 in Ireland, where the story is much the same as the others. Announced alongside Intel's investment in Germany, the Leixlip, Ireland-based fab was due to receive a €12 billion ($12.7 billion) investment to upgrade the facility to support EUV lithography necessary to produce chips using the Intel 4 process.
However, by the time the plant began volume production of the new node in September, costs had increased to €17 billion ($18.1 billion).
Intel also detailed progress on its advanced packaging facility in Penang and a fifth assembly test manufacturing plant in Kulim, Malaysia.
The former dates back to late 2021, and saw $7 billion set aside for a 710,000 square foot facility designed to manufacture products built using Intel's 3D Foveros packaging tech.
Intel also provided something of an update on its planned assembly and test facility in Wrocław West, Poland. The $4.6 billion project was first teased in mid 2023 and is designed to support Intel's European build out – including the facility in Magdeburg.
Beyond this, Intel didn't provide much of an update – other than to highlight joint research and development projects with Wrocław University of Science and Technology and to cultivate local talent to fill the 2,000 positions the site is expected to employ.
A long costly game
With its foundry build out well under way, Intel has begun taking steps to separate its Product and Foundry businesses to avoid the kinds of conflicts of interest that can arise when building chips for competitors.
Intel detailed the split at its Foundry Direct event in February. The two organizations will be separate legal entities with independent sales forces and ERP systems, Intel Foundry Services head Stu Pann explained at the time.
Intel Product and Foundry financials will be reported separately. We caught a glimpse of this earlier in the month, when Chipzilla released revised financial disclosures reflecting the change.
The new reporting structure effectively makes Intel Products look more like a fabless semiconductor manufacturer. Meanwhile, Foundry looks rather unhealthy – owing in no small part to the fact that Intel is its only major customer at this stage.
In 2023, Intel's revised records showed that its Foundry business had an operating loss of $7 billion. And with so much money wrapped up in capital expenditures, losses are not expected to disappear in the short term.
Speaking with analysts, Gelsinger warned that it would likely be 2027 before Intel turned the corner, with a not inconsiderable part of that being a reduced reliance by its Product group on rival foundries.
Many Intel products – like its Gaudi and GPU Max accelerators – are manufactured in part or in whole by TSMC. By 2027, Intel aims to reduce the amount of kit it outsources to other manufacturers from 30 to 20 percent of its total output.
Intel's mass market 18A process node – on which much of Gelsinger's Foundry bet hinges – won't see broad adoption until at least 2026.
Cheap and easy prediction time:
If China does not invade Taiwan, Intel will forfeit a bunch of big loans and be forced to divest itself of some of the failed Intel Foundry program.
In this progression, Intel will beg more $$
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