Intel CEO Hopes for Chips Act Enactment in 2021

Intel expects its plans to build new chip fabs will “benefit from investments from governments" that understand that a "healthy semiconductor industry is vital to their economic well-being and national security,” said CEO Pat Gelsinger on a Q3 call Thursday. With bipartisan congressional support, “we’re hopeful the Chips Act will be passed by the end of this year, allowing us to accelerate decisions for our next U.S. site,” he said. Intel broke ground on two new fabs last month in Chandler, Arizona (see 2109240043).

The Chips Act will “enable a more level playing field with our competitors who enjoy significant support from their governments,” said Gelsinger. “We've also seen considerable interest in the EU with the European Chips Act, and the process to select our next site in Europe is proceeding rapidly. Intel remains the only global company committed to building a leading-edge foundry in the U.S. and Europe for customers around the world.”

Demand for semiconductors remains strong, and Intel factories performed “exceptionally well” in Q3, despite “a highly dynamic environment,” said Gelsinger. “Overall industry supply remained very constrained.”

The “digitization of everything” is driving “the sustained need for more semiconductors, and the market is expected to double to $1 trillion by 2030,” said Gelsinger. Intel estimates the market for leading-edge nodes will rise by then to generate more than half of total industry revenue, he said. The market for leading-edge foundry services will grow at twice the rate of the semiconductor industry overall, he said.

PC demand “remains very strong,” said Gelsinger. The total addressable market in PCs will grow by double digits this year, “even as ecosystem shortages constrain our customers’ ability to ship finished systems,” he said. Dell, HP, Lenovo and other OEMs and “ecosystem partners” agree PCs are “now a structurally larger and sustainably growing market,” than before the COVID-19 pandemic, he said. “As we head into 2022, we expect the ecosystem supply situation to gradually improve.”

Intel expects the PC market will continue to grow next year, assisted by the “tailwinds” of the Windows 11 launch, said Gelsinger. Hybrid work models, a larger installed base and “compelling new platforms” also are expected to “drive PC density, shorter replacement cycles and penetration of new markets,” he said.

With the impact of Intel’s investments in capacity improvements and the “acceleration of our process technology,” the company is forecasting 51% to 53% in gross margins over the next two to three years “before moving upward,” said Chief Financial Officer George Davis. Though gross margins will decline from the 57% that Intel is forecasting for 2021, “we are in a time of accelerated investment in capital, process node acceleration and R&D,” he said.

Intel’s management sees right now as “a pivot point for the company” to act aggressively on advanced nodes, even if it means sacrificing gross margin, said Gelsinger. “We could have chosen a more conservative route with modestly better financials,” but instead the board and the management team are “choosing to invest,” he said.

The strategy will be to “rapidly move through" five process nodes in four years, "and this will have pressure on the margins near term as we ramp those up,” said Gelsinger. “These investments that we're making now in our road map will pay off,” he said. Intel is “confident in the multiyear recovery of the margins” because it will mean yielding products that “will produce great results for us long term,” he said.

Intel plans to be “decisive” and “very transparent” as the strategy goes forward, said the CEO. “Upfront, we're laying out an understanding of where we're going, and we elected to give that guidance earlier than we might have otherwise, not just for next year, but over the horizon as well. So now is the time, and we're making that decision boldly and aggressively.” Early signs suggested investors weren't buying in. The stock closed 11.7% lower Friday at $49.46.