Intel: heavy spending is no guarantee of a return to a leading position
Can Intel spend its way back to chipmaking relevance? That is the question investors should be asking as the US semiconductor manufacturer unveils plans to invest €33bn in chip production and research across Europe. The news comes as the company looks to spend more than $40bn to build and expand chipmaking facilities in the US. In Europe, Intel says it could end up investing as much as €80bn on the continent over the next decade.
Intel boss Pat Gelsinger has picked a good time to embark on a building spree. Semiconductors, which run everything from smartphones to medical devices to F-35 fighter jets, have become the new battleground for ferocious geopolitical rivalry. The global chip shortage has only heightened this sense of anxiety. Governments in both the US and Europe are pouring tens of billions of dollars of subsidies into the sector to lessen their dependence on Asian chipmakers.
Even with the help of taxpayer largesse, it is not clear whether Intel’s spending binge will be enough to return the company to its former glory. It has fallen behind its Asian rivals, after decades of global leadership,
A 30 per cent decline in Intel shares over the past 12 months reflects investor scepticism that the company can close the gap with rivals. The giant new fab — or manufacturing plant — that Intel plans to build in Germany for example is aimed at churning out new cutting edge chips that are two nanometres or less in width. Yet it is not expected to be up and running until 2027. By contrast TSMC and Samsung are both looking to mass-produce these chips by 2025.
In the meantime, Intel will be feeling the cash burn. Adjusted free cash flow is expected to be negative $1bn to $2bn this year. Capital expenditure will come in at around 35 per cent of this year’s projected revenue and gross margins will drop to under 50 per cent compared to 55.4 per cent last year.
Intel says this is short term pain for long term gain. Investors may not stick around long enough to find out.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.