Intel and Apollo Agree to Form a Joint Venture Concerning Intel’s Irish Fab 34. The Irish manufacturing transaction is in line with Intel’s Smart Capital strategy, which promotes adaptable and capital-efficient expansion.
Intel Fab 34
Today, Intel Corporation and Apollo announced a final deal where in Apollo-managed funds and affiliates will spearhead a $11 billion investment to purchase a 49% ownership stake in a joint venture company associated with Intel’s Fab 34 from Intel.
This deal is Intel’s second participation in the Semiconductor Co-Investment Programme (SCIP). A component of Intel’s Smart Capital strategy, SCIP is a funding method intended to preserve a solid balance sheet while generating the financial flexibility needed to advance the company’s goal, which includes investing in its worldwide manufacturing facilities.
Intel Fab 34 Ireland
Fab 34, Intel’s state-of-the-art high-volume manufacturing (HVM) facility, is situated in Leixlip, Ireland, and is intended to produce wafers utilizing the Intel 4 and Intel 3 process technologies. Intel has spent $18.4 billion building Fab 34 thus far. Through this deal, Intel can continue to develop Fab 34 while unlocking and reallocating a portion of this investment to other areas of the company.
Intel has invested billions of dollars to reclaim process leadership and expand its global capabilities in advanced packaging and wafer fabrication as part of its transformation plan.
According to the terms of the deal, the joint venture will be able to produce wafers at Fab 34 in order to meet long-term customer demand for Intel products and to accommodate Intel Foundry customers. In the joint venture, Intel will own a 51% controlling stake. Fab 34 and its assets will remain fully owned and operated by Intel.
The goal of the deal is to provide cash to the business at a lower rate than Intel’s equity, strengthening its already robust balance sheet. From a ratings standpoint, the joint venture investment is anticipated to be viewed as equity-like.
“With Intel’s agreement with Apollo, we have more freedom to implement our vision and invest in building the most robust and sustainable semiconductor supply chain globally. With the worldwide semiconductor market expected to quadruple over the next five years, our investments in cutting-edge capacity in the U.S. and Europe will be essential to meeting the increased demand for silicon, according to Intel CFO David Zenner.
Jamshid Ehsani, an Apollo partner, continued, “Apollo is excited to start this collaborative venture with Intel. This extremely important capital deal, one of the biggest private investments of its kind, demonstrates Apollo’s capacity to support supply chain resilience and offer innovative, scalable capital solutions to industry leading infrastructure and organizations.
Additionally, it emphasizes our position as a reliable financial partner, utilizing private capital to support the development of the New Economy. This includes the development of next-generation AI technologies, which will necessitate significant investments in foundries, data centers, sustainable power generation, and semiconductor capabilities.
Transaction Information
Fab 34’s construction is almost finished, and in September 2023, high-volume production of Intel Core Ultra CPUs based on Intel 4 technology started there. Granite Rapids, Intel’s next-generation data centre solution based on Intel 3 technology, is likewise rapidly approaching completion of its ramp.
The joint venture will produce wafers on a cost-plus-margin basis for Intel’s purchase. According to the terms of the agreement, Intel must complete the construction of Fab 34 and buy wafers from the joint venture for both internal use and external clients. It also needs to commit to a minimum volume of wafers after the facility is substantially completed.
Intel expects to account for income attributable to the 49% ownership interest in net income (loss) attributable to non-controlling interests and consolidate joint venture results through net income for financial reporting purposes. As the production ramps up to full capacity, Intel anticipates that net income attributable to such non-controlling interest will increase after being constrained in the first two years.
It is anticipated that the deal would finalise in 2024’s second quarter.
Intel’s Smart Capital Strategy
Intel may resume its leadership in process technology and products with the help of Smart Capital, which offers financial restraints and acceleration. Apart from SCIP, other components of Smart Capital consist of:
- Government incentives to create equitable conditions for developing a resilient and geographically diverse semiconductor supply chain.
- Shell space build-out, which allows the company to choose when and how to add more capacity online.
- Customer involvement in internal capacity build-outs as Intel implements its foundry strategy.
- Judicious and strategic use of external foundries.
The company’s phase of accelerated production investment, which started in early 2021, has been funded by Intel’s SCIP programme. The company has signed this second SCIP agreement and has decided not to pursue any other SCIP transactions in the near future.
Intel Fab 34 Opening
The Manufacturing Presence of Intel in Ireland
The first EUV (extreme ultraviolet lithography) high-volume manufacturing facility in Europe, Fab 34 in Ireland, opened in September 2023. Fab 34 should enable high-volume Intel 3 and 4 manufacture.
Intel has two factories in Leixlip: Fab 34 and Fab 24. This facility has been crucial for producing the company’s 14-nanometer silicon microprocessors and for getting ready to serve clients of the Intel Foundry. This deal with Apollo is exclusive to Fab 34.
Advisors
Intel’s primary financial advisor was Goldman Sachs & Co. Its legal assistance was provided by Eversheds Sutherland and Skadden, Arps, Slate, Meagher & Flam LLP. The legal advisor to the Apollo-managed funds and affiliates is Paul, Weiss, Rifkind, Wharton & Garrison LLP, while the advisor to the Apollo co-investors is Latham & Watkins LLP.
Statements Regarding the Future of Fab 34
This press release includes forward-looking statements about Intel’s expectations regarding the Apollo agreement, including how it will affect its business, strategy, and financial situation. How it will unlock and redeploy a portion of its investment in Fab 34. When the transaction is expected to close and what effects it will have on those effects.
How it will affect Intel’s operational results going forward. How it will affect its cost of capital and how Apollo’s investment in the joint venture will be treated as equity-like from a rating perspective. And how Fab 34 will be built out and ramped up. Such statements contain a number of risks and uncertainties, including those related to the following, that could result in actual results or outcomes differing substantially from those stated or implied.
The fierce rivalry and quickening pace of technical advancement in Intel’s sector; the substantial, long-term, and intrinsically hazardous investments Intel is making in manufacturing and research and development facilities, which might not yield a profitable return.
The difficulties and risks involved in creating and introducing novel semiconductor products and manufacturing process technologies. Intel’s capacity to effectively schedule and scale its capital expenditures and obtain advantageous alternative financing arrangements and government grants. The adoption of novel business plans and the investment in novel ventures and technologies.
Shifts in the market for Intel’s goods
Macroeconomic conditions, geopolitical conflicts and tensions, such as the US-China trade and geopolitical tensions, the effects of Russia’s war on Ukraine, the Middle East and Israel tensions, and the growing tensions between Taiwan and mainland China.
The evolving market for products with AI capabilities. Intel’s complex global supply chain, including from disruptions, delays, trade tensions and conflicts, or shortages. Product defects, errata and other product issues, particularly as Intel develops next-generation products and implements next-generation manufacturing process technologies. Potential security vulnerabilities in Intel’s products.
Increasing and evolving cybersecurity threats and privacy risks. IP risks including related litigation and regulatory proceedings. The requirement to attract, retain, and motivate critical staff.
Strategic deals and investments: Sales-related risks include customer concentration and distributor utilization. Intel’s significantly reduced return of capital in recent years. Debt obligations and ability to access sources of capital. Complex and evolving laws and regulations across many jurisdictions. Currency exchange fluctuations.
It is advised that readers should not rely unduly on such forward-looking statements in light of these risks and uncertainties. The numerous disclosures made in the documents Intel occasionally files with the SEC that reveal risks and uncertainties that could have an impact on its business are encouraged to be thoroughly read over and carefully thought through by readers.
The expectations expressed in this report’s forward-looking statements, unless otherwise noted, are based on Intel management’s expectations as of the report’s date, unless an earlier date is specified. This includes expectations based on projections and information from third parties that management considers reliable. Except to the extent such disclosure may be mandated by law, Intel does not undertake, and expressly disclaims any duty, to update such statements in light of new information, developments, or otherwise.
