Supply Chain

Building supply-chain resilience with innovative financing

Intel’s CFO on the innovative financing model for new chip plants.
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· 3 min read

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Putting your money where your mouth is ain’t easy, especially when your mouth is talking about billions of dollars. But sometimes, to use another hack phrase, you gotta put up or shut up. Or, you know, spend to save! Skin in the game! Whatever cliché works for you.

That’s particularly true when it comes to building supply-chain resiliency. The supply-chain disruptions of the last several years exposed vulnerabilities and risks in critical industries. Fixing those problems is costly and complicated.

Take semiconductors. There’s a narrow funnel of semiconductor production running through geopolitically risky Taiwan and many industries found their supply of semiconductors choked off during the pandemic. Nearly all of the world’s semiconductor manufacturing was outsourced to Taiwanese companies over the last two decades, and there is little chip-manufacturing capacity outside of Taiwan. One firm alone, Taiwan-based Taiwan Semiconductor Manufacturing Company (TSMC), controls over half of the world’s semiconductor foundry production.

Governments, companies, and think tanks the world over are now looking for ways to bolster and protect semiconductor manufacturing and supply chains. Paying for those solutions requires financial creativity, innovation, and cooperation.

Case in point: To reshore semiconductor manufacturing, US chip maker Intel started building two new semiconductor foundries in Arizona last year, at an estimated cost of $20 billion. In August 2022, Intel announced a new $30 billion funding model for the Arizona facility.

“To build these $30 billion fabs [fabricating facilities] is not something that even Intel can do on its own,” said Intel CFO David Zinser during a fireside chat at the MIT Sloan CFO Summit last week.

The innovative financing deal is a partnership between Intel and Toronto-based Brookfield Asset Management. Under the terms of the deal, the two companies will jointly invest in building the new foundry plants and then share in the resulting cash flow. As a result, Intel now has a much larger pool of capital to invest in the projects without taking on significant debt.

Creative financing. “We expect it will allow us to increase flexibility while maintaining capacity on our balance sheet to create a more distributed and resilient supply chain,” Zinser said in an August statement when the deal was announced.

Alongside the deal with Brookfield, Intel is also relying on a wide range of options, including a mix of government subsidies and tax breaks to get the plants built, said Zinser.

“In some cases, we’ve had to use some creative financing to help us finance the fabs,” he said at the Summit. “We’ve had to look for customers to advance us so that we can make this all work and not stress the balance sheet to a point where we’re putting ourselves at risk.”

Read more here.—DA


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