On Tuesday, August 23, INTEL and Canada’s Brookfield Asset Management came to an agreement to jointly fund up to $30 billion for Arizona chip factories. This agreement fuelled Intel’s desire to increase chip production domestically without burdening its balance sheet.
While Intel will retain ownership and operating control of the 2 chip factories intended to produce advanced chips in Chandler, Arizona, Brookfield’s infrastructure company will invest up to $15 billion for a 49% stake in the expansion project.
The investment represents an expansion of a contract signed in February between Intel and Brookfield to look into financing possibilities for additional Intel production facilities.
Some specific details weren’t disclosed by the two companies. The interest rate, which is higher than debt financing but lower than equity financing, is between 4.4% and 8.5%, Intel’s finance director David Zinsner informed analysts.
Foundries are a cash-flow generating investment option for private capital providers like Brookfield, similar to private equity investments in infrastructure like data centres and fibre, signalling investors’ long-term confidence in semiconductor demand.
With the financial commitment for the multi-year project, Intel could save its debt capacity for other objectives while keeping operational control.
Zinsner anticipates that the semiconductor industry will test several funding schemes similar to this one in the future.
The agreement was made when US President Joe Biden signed the Chips and Science Act into law, which includes a provision for US semiconductor production and research subsidies totalling $52.7 billion.
The agreement between the businesses, according to Zinsner, “builds on the momentum from the recent enactment of the Chips Act in the US.”
They were designed to increase Intel’s chip manufacturing during a supply shortage that lasted more than two years and slowed the production of everything from vehicles to computers.
Due to a decline in PC demand, Intel cut its annual predictions last month.
By the end of 2022, the deal with Brookfield is anticipated to be finalised. The deal’s advisor to Intel was Lazard Frères.