SANTA CLARA, Calif. — Intel said Sunday, April 2, it will spend $3.5 billion to upgrade its aging manufacturing facilities in New Mexico and confirmed it will spend $10 billion on a new factory in Israel, part of a broad push to expand the chipmaker’s production capacity under newly installed CEO Pat Gelsinger.
Sunday’s announcements follow Gelsinger’s March declaration that Intel will spend $20 billion to build two new factories in Arizona. After years of carefully managing its capital spending and returning money to investors, Gelsinger indicated the company is now budgeting for expansion instead.
Having committed to more than $30 billion in new spending over the past two months, though, Intel will need to do more to cover those costs. Gelsinger, like other chip executives, wants government support.
The U.S. and Europe need to counter the subsidies governments provide the chip industry in Asia, Gelsinger said on “60 Minutes” Sunday night. He described the chip sector as an economic necessity and national security issue – especially given a global chip shortage that is constraining production of everything from laptop computers to automobiles.
“This is a big, critical industry, and we want more of it on American soil: the jobs that we want in America, the control of our long term technology future,” Gelsinger said. He said it will be “a couple of years” before the chip industry overcomes the current backlog in demand.
Politico Europe reported last week that Intel was seeking nearly $10 billion in subsidies in exchange for building a factory somewhere in Europe. The company denied that Sunday, saying “Intel has not requested a specific amount.”
Intel’s spending spree follows severe deterioration of Intel’s manufacturing capabilities under its last two CEOs, Brian Krzanich and Bob Swan. The company lost its lead in advanced chip technology after successive delays to its 14-nanometer, 10nm and 7nm microprocessors caused by persistent manufacturing defects.
Intel began the year deliberating publicly about whether to give up and outsource its advanced production to rivals in Asia. Instead, the company hired Gelsinger in January and embarked on an ambitious plan to revive its production technology.
On Sunday, he told “60 Minutes” that Intel expects to quickly reverse its technological setbacks.
“We believe it’s gonna take us a couple of years and we will be caught up,” Gelsinger said. Investment analysts have said Intel is likely to trail the industry for most of the next decade, at the least.
Intel is Oregon’s largest corporate employer, with close to 21,000 people working at its Washington County campuses. It doesn’t appear that Intel plans additional expansion in Oregon to accompany its new manufacturing push.
The company is winding up a multibillion-dollar expansion of its D1X research factory on its Ronler Acres manufacturing site near Hillsboro Stadium, a project that will add 1,750 jobs when complete late this year.
That expansion, and a new, $600 million water treatment facility, appear to have filled all the large plots of land at Ronler Acres. That leaves Intel without any obvious locations for new Oregon factories.
As Intel struggled to adapt to new manufacturing technologies over the past several years, it spent little on new factories and instead committed billions of dollars to buying back its own stock. Stock buybacks typically have the effect of boosting a company’s share price, but they’re also an explicit admission that a business has more money than it knows what to do with.
Now, Intel is embarking on the most expensive expansion in its history – and Gelsinger said Sunday night it will spend its money very differently
“We will not be anywhere near as focused on buybacks going forward as we have in the past,” Gelsinger said. “That’s been reviewed as part of my coming into the company, agreed upon with the board of directors.”