<News Analysis> Intel announces plans to build two new leading-edge fabs

  • Intel announced plans to build two new leading-edge chip factories in Ohio
  • At full buildout, the total investment in the site could grow to as much as US$100bn over the next decade, making it one of the largest semiconductor manufacturing sites in the world
  • Construction is expected to begin in late-2022 and production is expected to come online in 2025
  • No changes to recommendation and TP; We currently have a BUY recommendation and TP of S$6.04.

What’s New

Intel announced plans for an initial investment of more than US$20bn to build two new leading-edge chip factories in Ohio.

  • The investment will help boost production to meet surging demand for advanced semiconductors and will be used to produce both Intel’s chips as well as support its new foundry business as part of its IDM 2.0 strategy
  • The site will span across 1,000 acres and the mega-site can accommodate a total of eight fabs
  • At full buildout, the total investment in the site could grow to as much as US$100bn over the next decade, making it one of the largest semiconductor manufacturing sites in the world
  • Construction is expected to begin in late-2022 and production is expected to come online in 2025

Our Thoughts

Change is brewing in Intel. Earlier in December 2021, Intel had also announced major capex spending – it will invest US$7.1bn to expand its test and assembly operations in Malaysia. Since Pat Gelsinger joined Intel as its new CEO in February 2021, he has made commitments to bring back Intel’s competitive edge. In our view, with an engineering background, he understands the importance of R&D and spending to remain at the forefront of competition, as compared to his predecessor who was a CFO by training.

Remain positive on multi-year structural growth, backed by Intel’s BIG spending. With new capital commitments, analysts are expecting Intel’s capex to increase by 43/6% in FY22/23F after growing by 27% in FY21F. We remain positive on a multi-year structural uptrend in the semiconductor industry, driven by new technology (5G, AI, autonomous driving, electric vehicles, etc). The US 3-month semiconductor equipment billings, which we use as a gauge for the industry’s momentum continues to trend upwards, recording a 50% y-o-y growth in November 2021. 

We believe that Intel’s new planned fabs sets AEM’S continued growth in the medium to longer term (next 5-10 years). As we alluded to in our earlier reports, front-end semiconductor equipment companies would first benefit from the spending in the earlier phase of construction while back-end players such as AEM would benefit after c.7 quarters.

We remain positive on AEM and we currently have a BUY recommendation and TP of S$6.04.