Cliff Taylor: The three big questions over Intel selling 49 per cent of its new Leixlip plant

Intel has confirmed that it is selling 49 per cent of its new Fab plant in Leixlip to an investment fund, Apollo Global.

The story broke a few weeks ago and the latest announcement confirms that the deal relates to Fab 34, the company’s new facility which opened last September and in which it continues to invest.

The company is raising about $11 billion (€10 billion) in a deal that is expected to be finalised in the coming weeks.

But what does this mean?

1. Why is Intel doing this?

The company has massive investment plans as it tries to catch up with other big semiconductor companies like Taiwan’s TSMC and Nvidia and re-establish itself as an industry leader.

It has undertaken huge spending over the past three years in pursuit of this, targeting the development of ever-more-advanced chips for use in areas like artificial intelligence, where Nvidia has led the way.

[ Intel secures $11bn from Apollo Global for 49% of Leixlip plant ]

Two years ago Intel undertook a similar deal, selling stakes in plants in Arizona to financier Brookfield to fund the building of two new plants there. Intel says that raising funds in this way is cheaper than selling new shares or bonds to investors.

The market has yet to be fully convinced as its share price languishes, though the company is seen to have made progress under chief executive Pat Gelsinger, who took over in 2021.

[ Intel’s $11bn Irish factory deal underpins 6,500 jobs as it seeks to rekindle mojo ]

2. What does this mean for the new Fab 34 plant and for the employees at Leixlip?

Intel will retain a controlling stake in the new plant and Apollo’s investment indicates that it believes it has a profitable future in the long term, which is positive.

What is unclear is whether the presence of a private capital investor will have an impact on the longer-term decisions in relation to the new plant in Leixlip, for example if future investment is required to upgrade it in future.

Fab 34 will now be owned by a joint venture which will sell chips to Intel on a cost plus profit margin basis for Intel’s own use and also as part of its goal to act as a “foundry”, producing chips for other companies.

Apollo is buying a 49 per cent “equity interest”, meaning it will get a share of future profits. Intel will retain ownership of the assets and operational control of the plant. Further details will presumably be announced when the deal closes.

In terms of future decisions, one issue is that private investors focus on a cash return, while Intel takes other issues into consideration.

The unusual nature of this kind of deal means it is difficult to know the impact, though the Government and IDA Ireland will be trying to get an initial fix on this in the months ahead.

For now, in terms of the company and its employees here, it will be full steam ahead with the new plant, which started high-volume production last September and is at the cutting-edge of Intel technology. Intel has an existing Fab 24 plant at Leixlip, which is not part of the new deal. To the extent that it boosts the company’s overall fortunes, this will be positive for its employees worldwide, including the 6,500 in Ireland.

3. Where will be the money be invested?

Intel does not specify this in its announcement, referring to plans to invest significantly more in the US and Europe. It has undertaken massive investment in Leixlip to date, including more than $18 billion in Fab 34, as part of a total investment north of $30 billion in Ireland and new spending will continue as capacity at the new plant is built up.

[ After 25 years, Intel’s Dow days look numbered. Nvidia is the top dog in AI race ]

However, Ireland lost out to a new-generation Fab plant in an Intel decision in 2022 – Oranmore in Galway had been considered but Magdeburg in Germany won out, helped by massive subsidies from the German government.

The company is also investing significantly in the US, helped by big subsidies from the US government available under the 2022 Chips Act, the goal of which is to increase the American position as a manufacturer of microchips for key geopolitical reasons, for example related to their role in deference products and AI.

Currently the world’s biggest producer is Taiwan. Europe responded with its own Chips Act which allows much greater state aid that had been the case to attract these plants to Europe. It will be important for Ireland in the long term that the company continues to invest here, though in the short term most of the cash raised from this deal looks set to go elsewhere.