Wall Street has soured on Intel in recent years, turning its attention to flashy new semiconductor upstarts instead. Now that Intel is the beneficiary of goodwill in Washington and a cold war in Asia, investors are scurrying back. On Tuesday, the US microprocessor legend announced an ambitious plan to expand its global chips business. Intel will spend $20bn to build two additional fabrication plants in Arizona. It also plans to build a “foundry” unit that will manufacture chips for third party, “fabless” designers.
Intel’s waning manufacturing prowess has led at least one investor to suggest it get out of making its own chips. Recently appointed chief executive Pat Gelsinger is making the opposite bet. It is made easier by the US president’s tacit backing. Semiconductors have become a proxy battle between the US and China. Joe Biden has made domestic capabilities a key priority.
According to data shared by Intel, nearly half of global chip sales occur in the US, though American production is only about a tenth of the total. That proportion has dropped with the rise of Taiwan Semiconductor Manufacturing Company and other manufacturers in Asia. Tension with China means Washington is willing to spend taxpayer money to ensure vital supply chains remain in the US.
Gelsinger claims Intel’s ability to keep up with cutting-edge chip manufacturing is improving. The company also said that its 2021 revenue and profits will exceed previous forecasts based on strong laptop PC demand. This is a nice boost along with the long-term strategy shift. Intel shares are up 27 per cent this year while the S&P 500 is up just 4 per cent. The $15bn forecast for annual free cash flow makes the $20bn capital commitment seem reasonable.
Despite its status as tech pioneer, Intel has taken a back seat to a resurgent Microsoft and other Silicon Valley upstarts. Now it is going supersize. Google was one of several tech luminaries to offer a statement of support for Intel’s strategy shift. After Washington, that may be the most important endorsement of all.
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