Intel and Apollo announced a definitive agreement under which Apollo-managed funds and affiliates will lead an investment of $11 billion to acquire a 49% equity interest in a joint venture entity related to Intel’s Fab 34 from Intel.
The deal represents Intel’s second Semiconductor Co-Investment Program (SCIP) arrangement. SCIP is an element of Intel’s Smart Capital strategy, a funding approach designed for creating financial flexibility to accelerate the company’s strategy, including investing in its global manufacturing operations while maintaining a strong balance sheet.
Based in Leixlip, Ireland, Fab 34 is Intel’s high-volume manufacturing (HVM) facility designed for wafers using the Intel 4 and Intel 3 process technologies. So far, Intel has invested $18.4 billion in Fab 34. This deal enables 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 this transformation, Intel has committed billions of dollars of investments to regaining process leadership and building out leading-edge wafer fabrication and advanced packaging capacity globally.
Under the terms of the deal, the joint venture will have rights for manufacturing wafers at Fab 34 to support long-term demand for Intel’s products and provide capacity for Intel Foundry customers. Intel will have a 51% controlling interest in the joint venture. Intel will retain full ownership and operational control of Fab 34 and its assets. This deal was designed to enhance the company’s strong balance sheet with capital at a cost below Intel’s cost of equity.
The construction of Fab 34 is largely complete, and high-volume manufacturing of Intel Core Ultra processors on Intel 4 technology began there in September 2023. And the ramp of Granite Rapids, Intel’s next-generation data center product on Intel 3 technology, is also well underway.
This joint venture will manufacture wafers for sale to Intel on a cost-plus-margin basis. Under the agreement, Intel is required to 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.
Intel plans to consolidate the joint venture’s results 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 interests to be limited in the first two years but to increase thereafter as the factory ramps to full capacity.
Intel celebrated the opening of Fab 34 in Ireland in September 2023, marking the first use of extreme ultraviolet lithography (EUV) in high-volume manufacturing in Europe. And Fab 34 was designed to support high-volume production of Intel 3 and Intel 4 technologies. Along with Fab 34, Intel maintains a second manufacturing facility in Leixlip, Fab 24, which has been a key location for the production of Intel’s 14-nanometer silicon microprocessors while also preparing to support Intel Foundry customers. The transaction with Apollo only pertains to Fab 34.
Goldman Sachs acted as lead financial advisor to Intel and Skadden, Arps, Slate, Meagher & Flom and Eversheds Sutherland served as legal counsel to Intel. Paul, Weiss, Rifkind, Wharton & Garrison 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.
The deal is expected to close in the second quarter of 2024.
KEY QUOTES:
“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. This transaction allows us to share our investment with an established financial partner on attractive terms while maintaining our strong investment-grade credit rating.”
– David Zinsner, Intel CFO
“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.”
– Apollo Partner Jamshid Ehsani
