Intel is spending $20 billion on new Arizona chip plants project

Chipmaker Intel announced on Tuesday that it will spend $20 billion on two chip plants projects in Arizona. The new chip factories will be called ‘fabs’ and they will be located in Chandler, Arizona.

Intel stock rose nearly 5% in after-hours trading on Tuesday.

The announcement was made alongside the new CEO, Pat Gelsinger’s first public speech since he assumed office. He hinted that Intel will focus more on manufacturing more chips as competitors are also stepping up their game to separate chip design and chip fabrication.

Intel currently has four operational factories called “wafer fabs” in the U.S. These are in addition to its site in Arizona which is currently being worked on. It has fabs in Massachusetts, New Mexico, and Oregon. Across national borders, Intel makes chips in Ireland, Israel, and China.

There is an ongoing global shortage of chips especially in industries like automobile and electronics that require semiconductors to run their products. President Joe Biden in February said domestic semiconductor manufacturing is a priority for his administration.

“Intel is and will remain a leading developer of process technology, a major manufacturer of semiconductors, and the leading provider of silicon globally,” Gelsinger said.

The company also said it will offer its services as a “foundry” or manufacturing partner for other companies that focus on chip design but need a company that makes chips to manufacture for them. Intel said its foundry unit will be called the Intel Foundry Services and will be led by Randhir Thakur, a current Intel vice president.

The foundry business will compete in a market worth nearly $100 billion by 2025, according to Gelsinger. It will also manufacture a range of chips including those based on ARM technology used in mobile devices.

Some investors and analysts have suggested that Intel spins off its foundry business to enable it to make more profit like other chip companies. In the past, Intel saw little success in its foundry services to other companies. However, the company is believed to have modified its plans in several ways including licensing its technical crown jewels – the x86 designs used in most of the world’s computers. This would enable customers incorporate that computing capability in chip designs they send to Intel to manufacture.

Potential customers for Intel include Amazon, Google, Microsoft, and Qualcomm, the company said. Intel also announced its potential partnership with IBM to improve chip logic and packaging technologies to “enhance the competitiveness of the U.S. semiconductor industry and support key U.S. government initiatives.”

The foundry division will offer the U.S. and Europe alternative to Asian chip makers. President Biden has given an executive order to begin a 100-day review that could boost chip companies in the U.S. with more government support and new policies.

“Today’s Executive Order, combined with full funding for the CHIPS Act. Can help level the playing field in the global competition for semiconductor manufacturing leadership, enabling American companies to compete on equal footing with foreign companies heavily subsidized by their governments,” Intel said in response to the executive order.

In addition to its $20 billion upfront commitment to the new Arizona factories, Intel hopes to negotiate with President Biden and his administration, and other governments to support the vision with incentives, according to Intel vice president Donald Parker.