Intel Corporation and Apollo Global Management have reached a definitive agreement under which Apollo-managed funds and affiliates will lead an investment of US$11 billion to acquire from Intel a 49% equity interest in a joint venture entity related to Intel’s Fab 34.

Primarily, the transaction represents Intel’s second Semiconductor Co-Investment Program (SCIP) arrangement. SCIP is an element of Intel’s Smart Capital strategy. This is a funding approach to create financial flexibility to accelerate the company’s strategy. Among them are investing in its global manufacturing operations, while maintaining a strong balance sheet.

Leading-Edge HVM Manufacturing

Located in Leixlip, Ireland, Fab 34 is Intel’s leading-edge high-volume manufacturing (HVM) facility for wafers using the Intel 4 and Intel 3 process technologies. To date, Intel has invested US$18.4 billion in Fab 34.

Specifically, this transaction allows Intel to unlock and redeploy to other parts of its business a portion of this investment while continuing the build-out of Fab 34. As part of its transformation strategy, Intel has committed billions of dollars of investments to regaining process leadership and building out leading-edge wafer fabrication and advanced packaging capacity globally.

New Joint Venture Details

Under the agreement, the joint venture will have the rights to manufacture wafers at Fab 34 to support long-term demand for Intel’s products and provide capacity for Intel Foundry customers. Mainly, Intel will have a 51% controlling interest in the joint venture. Also, Intel will retain full ownership and operational control of Fab 34 and its assets.

Primarily, the transaction aims to enhance the company’s strong balance sheet with capital at a cost below Intel’s cost of equity. Also, the investment in the joint venture is expected to be treated as equity-like from a ratings perspective.

“Intel’s agreement with Apollo gives us additional flexibility to execute our strategy as we invest to create the world’s most resilient and sustainable semiconductor supply chain. Our investments in leading-edge capacity in the U.S. and Europe will be critical to meet the growing demand for silicon, with the global semiconductor market poised to double over the next five years,” said David Zinsner, Intel CFO.

“This transaction allows us to share our investment with an established financial partner on attractive terms while maintaining our strong investment-grade credit rating.”

Apollo Partner Jamshid Ehsani added, “Apollo is pleased to enter into this joint venture with Intel. This highly strategic capital transaction is among the largest private investments of its kind and showcases Apollo’s ability to provide creative, scaled capital solutions to leading corporations and infrastructure, and to contribute to supply chain resiliency. It also underscores our role as a trusted financing partner, leveraging private capital to help build the New Economy, including next generation AI technology, which will require major investments in sustainable power generation, data centers, foundries, and semiconductor capabilities.”

Transaction Details

The construction of Fab 34 is largely complete. Moreover, high-volume manufacturing of Intel® Core™ Ultra processors on Intel 4 technology began there in Sept. 2023. The ramp of Granite Rapids, Intel’s next-generation data center product on Intel 3 technology, is also well underway.

Mainly, the joint venture will manufacture wafers for sale to Intel on a cost-plus-margin basis. Under the agreement, Intel will finish the build-out of Fab 34 and purchase wafers from the joint venture for itself and external customers, with minimum volume commitments for its wafer demand following the substantial completion of the facility.

For financial reporting purposes, Intel expects to consolidate results of the joint venture through net income and account for income attributable to the 49% ownership interest in net income (loss) attributable to non-controlling interests. Intel expects net income attributable to such non-controlling interest to be limited in the first two years, but to increase thereafter as the factory ramps to full capacity.

The transaction is expected to close in the second quarter of 2024.

Intel’s Smart Capital Approach

Smart Capital provides financial guardrails and acceleration to return Intel to process technology and product leadership. In addition to SCIP, other elements of Smart Capital include: 1) government incentives to provide a level playing field for building a geographically diverse and resilient semiconductor supply chain; 2) build-out of shell space, which gives the company the flexibility to determine how and when to bring additional capacity online; 3) customer participation in internal capacity build-outs as Intel executes its foundry strategy; and 4) strategic and opportunistic use of external foundries.

Additionally, Intel’s SCIP program has supported the company’s period of accelerated manufacturing investment that commenced in early 2021. With the signing of this second SCIP agreement, the company is not contemplating further SCIP transactions in the near term.

Intel’s Manufacturing Footprint in Ireland

Intel celebrated the opening of Fab 34 in Ireland in Sept. 2023, marking the first use of extreme ultraviolet lithography (EUV) in high-volume manufacturing in Europe. Fab 34 is designed to support high-volume production of Intel 3 and Intel 4 technologies. In addition to Fab 34, Intel maintains a second manufacturing facility in Leixlip, Fab 24. Specifically, this has been a key location for production of Intel’s 14-nanometer silicon microprocessors. Also, it is preparing to support Intel Foundry customers. The transaction with Apollo only pertains to Fab 34.

Advisors

Goldman Sachs & Co. acted as lead financial advisor to Intel and Skadden, Arps, Slate, Meagher & Flom LLP and Eversheds Sutherland served as legal counsel to Intel. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel to the Apollo-managed funds and affiliates, while Latham & Watkins LLP is serving as legal counsel to Apollo co-investors.

-05 June 2024-