Intel Corporation (Nasdaq: INTC) and Apollo (NYSE: APO) announced today a definitive agreement in which funds and affiliates managed by Apollo will lead an $11 billion investment to acquire a 49% stake in a joint entity related to Fab 34 from Intel.
Intel’s Smart Capital Strategy
This transaction represents the second deal under Intel’s Semiconductor Co-investment Program (SCIP), a key part of its smart capital strategy designed to provide financial flexibility and accelerate the company’s global strategy. The strategy includes investments in manufacturing operations worldwide while maintaining a strong balance sheet.
Details of the Agreement
Located in Leixlip, Ireland, Fab 34 is a state-of-the-art high-volume manufacturing facility designed for wafers using Intel’s 4 and 3 process technologies. To date, Intel has invested $18.4 billion in Fab 34. This agreement allows Intel to release and redeploy a portion of this investment to other parts of its business, furthering the expansion of Fab 34.
Under the terms of the agreement, the joint entity will have rights to manufacture wafers at Fab 34 to meet the long-term demand for Intel products and provide capacity for Intel Foundry customers. Intel will retain a controlling 51% stake in the joint entity and maintain full ownership and operational control of Fab 34 and its assets.
Benefits and Expectations
“Intel’s collaboration with Apollo provides us with additional flexibility to execute our strategy while investing in creating the world’s most resilient and sustainable semiconductor supply chain,” said David Zinsner, CFO of Intel. “Our investments in cutting-edge capacity in the U.S. and Europe will be critical to meeting the growing demand for silicon, with the global semiconductor market set to double in the next five years.”
Apollo partner Jamshid Ehsani added, “Apollo is pleased to enter into this joint venture with Intel. This highly strategic capital transaction, one of the largest of its kind, demonstrates Apollo’s ability to provide creative and large-scale capital solutions to leading corporations and contribute to the resilience of the supply chain.”
Transaction and Future Planning
The construction of Fab 34 is nearly complete, and high-volume manufacturing of Intel® Core™ Ultra processors in Intel 4 technology began in September 2023. The ramp-up of Granite Rapids, Intel’s next-generation data center product in Intel 3 technology, is also underway.
The joint entity will manufacture wafers for sale to Intel under a cost-plus-margin agreement. Intel will complete the construction of Fab 34 and purchase wafers from the joint entity for itself and external customers, with minimum volume commitments.
Intel expects to consolidate the results of the joint entity through net income and account for revenues attributable to the 49% stake in net income attributable to non-controlling interests. Net income attributable to such non-controlling interests is expected to be limited in the first two years but will increase as the factory reaches full capacity.
The transaction is expected to close in the second quarter of 2024.
Intel’s Smart Capital Focus
Intel’s smart capital focus provides financial guidelines and acceleration to return the company to leadership in process and product technology. In addition to SCIP, other elements of the smart capital focus include government incentives, space expansion, customer participation in internal capacity building, and strategic use of external foundries.
Intel Manufacturing Presence in Ireland
Intel celebrated the opening of Fab 34 in Ireland in September 2023, marking the first use of extreme ultraviolet lithography (EUV) technology 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, which has been key in the production of Intel’s 14-nanometer microprocessors.
Advisors
Goldman Sachs & Co. acted as the lead financial advisor to Intel, and Skadden, Arps, Slate, Meagher & Flom LLP and Eversheds Sutherland served as legal advisors. Paul, Weiss, Rifkind, Wharton & Garrison LLP acts as legal advisor to the funds managed by Apollo, and Latham & Watkins LLP as legal advisor to Apollo’s co-investors.
Forward-Looking Statements
This release contains forward-looking statements about Intel’s expectations regarding the agreement with Apollo, including its impact on Intel’s business and strategy, financial condition, and other key aspects. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied.