Intel Corp. is teaming with Canadian investment firm Brookfield Asset Management Inc. in a new financing program designed to fund the $30 billion chip factory build-out at Intel’s Chandler, Arizona campus.
The new program is called the Semiconductor Co-Investment Program, or SCIP, and Intel (Nasdaq: INTC) bills it as a “first-of-its-kind" partnership for the semiconductor industry. As part of the deal, Brookfield (NYSE: BAM) contributed $14.2 billion to the endeavor while Intel will contribute $14.8 billion.
This will give Intel 51% ownership of the entity created to own the Arizona factories, or fabs, and Brookfield 49% ownership. Intel will solely operate the fabs and Brookfield will receive a portion of revenue from the new fabs.
“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,” said Intel CFO David Zinsner, referring to Intel’s aggressive manufacturing investment strategy. “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.”
Brookfield is one of the largest global alternative asset managers, with $750 billion in assets under management. For Brookfield, this set-up is a well-known model for investing in such capital-intensive industries as energy and telecommunications.
The Intel deal marks the first time the arrangement has been used for semiconductors, the companies said in a call with analysts Tuesday morning.
“By combining Brookfield's access to large-scale capital with Intel’s industry leadership, we are furthering the advancement of leading semiconductor production capabilities,” said Sam Pollock, CEO of Brookfield Infrastructure in a written statement. “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.”
The deal is expected to be completed by the end of the year.
The Arizona fabs were announced last year shortly after new CEO Pat Gelsinger took over and unveiled his manufacturing strategy for Intel. The two fabs are part of Intel’s new foundry business, called Intel Foundry Services, that will make chips for other companies.
Gelsinger has dubbed Intel’s manufacturing strategy as IDM 2.0 — playing on its role as an integrated device manufacturer —and it includes massive investments in new and expanded fabs. In addition to the new Arizona facilities, the company is planning huge new campuses in Ohio and in Europe, plus expansions in Rio Rancho and a recently completed project in Oregon.
The strategy, in taking big new investments from the company, has already pressured Intel's margins, which has sent Wall Street investors retreating over the last several months.
Zinsner noted that this agreement will likely not be unique and that many are enthusiastic about the strategy. Bringing this financing model to semiconductors opens a new $2 trillion pool of capital to the sector, he added.
This type of partnership is one of several funding sources the company plans to tap for IDM 2.0. The others are customer payments to secure capacity, government incentives, cash from operations and debt.
