Brookfield, Intel partner on US$30-billion chip factory

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Brookfield Asset Management Inc.’s BAM-A-T infrastructure company will partner with Intel Corp. INTC-Q on a US$30-billion semiconductor project in Arizona, a venture that underscores Brookfield’s interest in real estate linked to the tech economy – and its ability to spend big on it.

Brookfield Infrastructure Partners LP will contribute US$15-billion and own 49 per cent of the venture, with Intel owning the other 51 per cent. Brookfield BAM-A-T has secured debt to finance the bulk of its contribution, with only about US$500-million to US$750-million in an equity investment, made over the several years it will take to build the plants. Proceeds will come from cash flow and “capital recycling” – cashing out other investments.

For Brookfield, the investment is part of another round of what it calls “asset rotation” – selling mature assets and reinvesting the proceeds in new capital projects. For Intel, the investment helps reassure investors who were wary that the chipmaker’s long-term growth plans required a massive investment that would suck away all the company’s near-term cash flow.

Intel INTC-Q announced a significant expansion of its semiconductor manufacturing capacity with plans for two new factories (or “fabs”) at the company’s Ocotillo campus in Chandler, Ariz., in March, 2021. Intel said in March it expected more than 3,000 high-tech, high-wage Intel jobs plus more than 3,000 construction jobs as a result of the two new plants.

Intel has been touting its “Smart Capital” strategy, which it said would “leverage government incentives, customer participation and other creative partnerships” as offsets to capital spending.

Raymond James & Associates, a U.S.-based investment banking company, said after a February investment meeting that “if you’re investing in [the company] now, you’re investing for 2025.“

“Intel’s recovery plan will be long and expensive …” the firm’s analysts wrote. “… Investors need to be willing to forgo free cash flow for the next three years and be willing to invest through the next likely downturn. We continue to think that remains a big ask for investors.”

Melissa Fairbanks, associate analyst at Raymond James, said Tuesday in a note that the deal has lessened the financial burden on Intel, but she still expects the company to spend more cash than it makes through the end of 2023.

Ken Copley, a portfolio manager and analyst at Capital Executive LLC, said in e-mailed comments Intel’s offloading some of the financial commitment while maintaining operational control is a smart move. “It’s also a smart move for Brookfield. If Intel regains its lost manufacturing expertise, then this venture should pay off generously for Brookfield. The manufactured chips will be in high demand because society requires more and more of this technology for everyday life, producing very favorable economics.”

While semiconductors may be new to Brookfield Infrastructure, technology is not. Brookfield Infrastructure has a data business segment that owns about 153,000 telecom towers in India; about 8,000 towers and rooftop sites in France; about 10,000 kilometres of fibre in France and Brazil; about 1,600 cell sites and more than 12,000 kilometres of fibre in New Zealand; about 2,100 towers and more than 70 antenna systems in Britain. It also owns 52 data-storage centres, with approximately 1.4 million square feet and 200 megawatts of capacity, in five continents.

Brookfield’s data segment recorded US$625-million in revenue in 2021 and US$335-million in EBITDA, or earnings before interest, taxes, depreciation and amortization.

Brookfield said Tuesday its “flexible and large-scale capital” can help companies like Intel “onshore” digital-economy jobs. Brookfield says the Intel project will replenish its existing backlog of capital projects near completion this year, including the Heartland Petrochemical Complex and the second phase of its build-out of electricity transmission lines in Brazil.

Despite global production capacity constraints, supply chain challenges and disruptions by the pandemic, the semiconductor industry is expected to grow 10 per cent in 2022 to more than US$600-billion for the first time, according to an outlook by Deloitte. The analysts said chips will be even more important across all industries, driven by increasing semiconductor content in everything from cars to appliances to factories, in addition to computers, data centres and phones.

The KPMG global semiconductor industry findings, which surveyed 152 semiconductor professionals, corroborates the projected growth in the industry. The survey shows that 95 per cent of industry leaders forecast their company’s revenue to grow, and 68 per cent forecast it will grow 11 per cent or more while 88 per cent anticipate expanding both their capital spending and work forces.

On Aug. 9, U.S. President Joe Biden signed the CHIPS and Science Act, which seeks to bolster the U.S. semiconductor supply chain and promote research and development of advanced technologies. The act provides US$52.7-billion to fund semiconductor incentive programs authorized by the CHIPS for America Act of 2021.

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