Where Intel Is Targeting Its $12 Billion Capital Spending



Intel’s capital spending for 2017

In the previous part of this series, we saw that Intel (INTC) is shifting its R&D (research and development) spending to growth areas. At the same time, it’s increasing its capital spending to $12.0 billion for fiscal 2017, indicating that its R&D efforts are materializing into product ramp-up.

At its 2017 Investor Day, Intel said it would spend $2.5 billion on memory and increase its capital spending on capacity expansion. The company has converted its Dalian fabrication facility (or fab) in China (FXI) to produce 3D (three-dimensional) NAND. It’s now looking to ramp up production of its 3D XPoint products, which it jointly developed with Micron Technology (MU).

On the capacity expansion front, Intel could spend its capital on the production ramp-up of its 10nm (nanometer) node. The company has also announced plans to invest $7.0 billion on a new fab in Arizona.

Article continues below advertisement

Intel invests in new fab

The new fab is expected to be completed in the next four years and is expected to manufacture microprocessors for data centers and IoT (Internet of Things) devices on 7nm process technology. The fab would generate around 3,000 direct high-tech, high-wage jobs and 10,000 indirect jobs.

This brings us to the question of why a company that cut 12,000 jobs in 2016 is investing $7.0 billion in a new fab when other semiconductor companies are closing their fabs.

Why is Intel investing in a new fab?

Intel’s chief executive officer Brian Krzanich said that the “tax and regulatory policies” introduced by the Trump administration encourage domestic manufacturing. He indicated support for the administration’s “policies to level the global playing field” and efforts to create jobs in the United States.

Over the years, the global semiconductor manufacturing capacity in the United States fell from 30.0% in 1990 to 13.0% in 2015. The fall was due to high US tax rates and large subsidies offered by offshore countries such as China. Stacy Smith, Intel’s head of manufacturing, operations, and sales, said it can cost about $2.0 billion more to build a fab in the United States than in China.

How would Intel benefit from the new fab?

Some analysts believe that Intel’s new fab is influenced by its own growth objectives and not by Donald Trump. The company is moving to data-centric technologies of 7nm node, artificial intelligence, and autonomous cars.

These technologies are complicated and dynamic and require close monitoring of manufacturing. By keeping production in the United States, Intel can better control its manufacturing. Intel is looking to keep a major portion of its chip manufacturing in the United States.

In the next part of this series, we’ll look at Intel’s spending in the manufacturing process.


More From Market Realist