Intel gets $11B from Apollo for joint venture at Irish chip fab

Frees up some of the cash Chipzilla's already sunk into Fab 34

Intel is to pocket $11 billion from private equity biz Apollo Global Management in exchange for 49 percent of a joint venture that will effectively run Intel's fabrication plant in Ireland.

The definitive agreement is intended to allow Intel to "unlock" some of the billions it has already sunk in Fab 34 at Leixlip in Ireland, and put the cash towards other parts of its sprawling empire.

This involves the creation of a joint venture that will have the rights to manufacture semiconductor wafers at Fab 34, both for Intel's own products and for Intel Foundry customers.

The transaction is expected to close in the second quarter of 2024, which effectively means by the end of this month.

Apollo-managed funds and affiliates will get a 49 percent stake in the joint venture for that $11 billion stake, while Intel will have a 51 percent controlling interest, meaning it retains full ownership and operational control of Fab 34 and its assets.

However, the joint venture will manufacture wafers for sale to Intel on a cost-plus-margin basis, meaning it will make a profit from selling wafers to the chipmaker that have been made in its own factory.

Under the terms and conditions, Intel is required to complete the build-out of Fab 34 and purchase wafers from the joint venture for itself and external customers, with unspecified minimum volume commitments.

Why would Intel make such a deal? According to Chipzilla, the transaction is "designed to enhance the company's strong balance sheet with capital at a cost below Intel's cost of equity." In other words, it is cheaper than borrowing the cash or raising funds through other routes.

"Intel's agreement with Apollo gives us additional flexibility to execute our strategy as we invest to create the world's most resilient and sustainable semiconductor supply chain," Intel CFO David Zinsner said.

"This transaction allows us to share our investment with an established financial partner on attractive terms while maintaining our strong investment-grade credit rating."

The Santa Clara biz indicates that this is the second Semiconductor Co-Investment Program (SCIP) arrangement it has made, with the first being a deal in 2022 that saw Brookfield Asset Management stump up $15 billion for a 49 percent stake in the Arizona fabs Intel is constructing.

We asked Intel if it was planning any further alliances to help finance the semiconductor fabrication plants it is building.

It told us: "This agreement provides us with the additional flexibility to advance our transformation strategy. Fab 34 is an ideal site given its size and the opportunity it represents. With the signing of the SCIP 2 agreement, the company is not contemplating further SCIP transactions in the near term."

The Leixlip facility is described by Intel as its leading-edge high-volume manufacturing facility for wafers using the Intel 4 and Intel 3 processes, and said it has already invested $18.4 billion in building out the plant, which is now largely complete.

Production of the new Core Ultra processors on Intel 4 began in September 2023, while a ramp up of the next-generation Granite Rapids datacenter chips, expected in Q3, is also said to be underway on Intel 3.

Intel has a second manufacturing facility at Leixlip, Fab 24, which has been a key location for production of Intel's 14-nanometer silicon microprocessors. The agreement with Apollo does not include Fab 24.

Industry talk of a deal between Intel and Apollo surfaced last month, but it was thought at the time that the investment was aimed at a new fabrication plant. Some of the $11 billion is instead likely to help fund Intel's existing projects, of which there are several.

Alan Priestly, VP of the Emerging Technology and Trends Research team at Garnter, told us: "Intel announced something similar with its planned fab in Ohio... [this] looks like this is a way to spread the load on funding new fabs, also changes the business model for Intel product groups acquiring wafers from its foundry/manufacturing biz.

"It's obviously not a full divestment of manufacturing capacity as AMD did with Global Foundries but it does look like it increases the separation between Intel's product groups and it manufacturing group." ®

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