Intel is spending $20 billion to build two new chip plants in Arizona


A semiconductor wafer during an Intel event ahead of a IFA International Consumer Electronics Show.

Krisztian Bocsi | Bloomberg | Getty Images

Intel announced on Tuesday that it will spend $20 billion to build two new chip factories, called fabs, in Ocotillo, Arizona.

The announcement on Tuesday, coinciding with new CEO Pat Gelsinger’s first public remarks since taking over the job, signals that Intel will continue to focus on manufacturing amid industry shifts that have led competitors to increasingly separate chip design and chip fabrication.

The news comes during a global chip shortage that is snarling industries from automobiles to electronics and amid worries the U.S. is falling behind in semiconductor manufacturing.

Intel also said on Tuesday that it will begin to act as a “foundry,” or a manufacturing partner, for other chip companies that focus on semiconductor design but need a company to actually make the chips. Intel said its foundry subsidiary will be called Intel Foundry Services and will be led by Randhir Thakur, a current Intel senior vice president.

Intel’s commitment to manufacturing has national security implications. Intel said it is entering into a partnership with IBM to improve chip logic and packaging technologies, which will “enhance the competitiveness of the U.S. semiconductor industry and support key U.S. government initiatives.”

In February, President Joe Biden said domestic semiconductor manufacturing is a priority for his administration. His administration hopes to fix going chip shortages and address lawmaker concerns that outsourcing chipmaking had made the U.S. more vulnerable to supply chain disruptions.

In an executive action, Biden started began a 100-day review that could boost American chip companies with additional government support and new policies.

“Today’s Executive Order, combined with full funding for the CHIPS Act, can help level the playing field in the global competition for semiconductor manufacturing leadership, enabling American companies to compete on equal footing with foreign companies heavily subsidized by their governments,” Intel said at the time in response to the executive order.

Intel currently operates four factories, called “wafer fabs,” in the United States. In addition to its site in Arizona, which is being expanded, it also has fabs in Massachusetts, New Mexico and Oregon. It also makes chips in Ireland, Israel and has a single fab in China.

Intel’s foundry will offer a U.S. and Europe-based alternative to Asian chip factories.

Gelsinger took over Intel on Feb. 15 from former CEO Bob Swan. Although he was most recently the CEO of VMWare, he started his career at Intel and his appointment has been regarded as a homecoming.

He took over a company facing a variety of challenges. Intel had lost its semiconductor manufacturing edge to Asia-based rivals, most notably TSMC. Intel’s most advanced chips use a 14-nanometer or a 10-nanometer process. Intel both designs the chips, then makes them in its own factories, called fabs.

But competitors, including Intel customers like Apple and rivals like AMD, just design the processor, then have it manufactured by an outside chip factory. These chip factories, like TSMC and Samsung, use a more advanced 5-nanometer process, which is superior because more transistors can fit in the same sized chip, boosting power and efficiency.

Intel said on Tuesday that its 7-nanometer chips are on track to hit a milestone in the second quarter and that it plans to manufacture the majority of its products itself. Still, Intel will increase its use of third-party foundries, it said.

This news is developing. Please check back for updates.

This article was originally published on CNBC