There are signs that OpenAI, the company that rose to fame with its AI models, is now eyeing the semiconductor manufacturing sector. However, can building a wafer fab be an easy success?

Recently, international media revealed details of OpenAI CEO Sam Altman’s meetings with senior executives from multiple chip manufacturers during his visit to Asia last year.

Altman visited top executives at companies such as TSMC and Samsung, proposing an ambitious plan to invest $7 trillion to build 36 new wafer fabs and data centers to drive the development of artificial intelligence. Altman envisioned that these fabs, funded by the United Arab Emirates, would produce AI chips, which OpenAI and other companies could use to build AI data centers.

The report highlighted that the scale of the investment Altman mentioned is equivalent to a quarter of the annual output of the U.S. economy. To meet OpenAI’s expansion needs for computing power, it would take several years to complete the necessary wafer fabs.

However, due to cost considerations, TSMC did not endorse Altman’s plan. TSMC executives considered Altman’s proposal too aggressive and risky. Even building a few more wafer fabs involves high risk due to the immense capital required, let alone 36 fabs.

How Much Does a Wafer Fab Cost? Hundreds of Billions of Dollars

In recent years, driven by the demand for AI models, the need for chips has surged, and wafer fabs have been expanding rapidly. However, as OpenAI’s experience shows building a wafer fab is no simple task. It faces challenges such as international dynamics, costs, and technological hurdles, with cost being the largest barrier.

The cost of a wafer fab primarily involves land and facility construction, equipment procurement, technology development and intellectual property, as well as operation and maintenance. Land and facility construction take up a significant portion, as a fab requires extensive land for building plants and basic infrastructure such as electricity, water supply, and communication.

On the equipment side, the purchase of lithography machines, etching machines, ion implanters, and thin-film deposition tools is a major expense, especially for advanced lithography machines, which are extremely costly.

Additionally, a wafer fab requires significant research and operational costs, including intellectual property, equipment maintenance, staff training, safety protocols, and environmental management, all of which demand continuous investment from manufacturers.

When all these factors are calculated, the cost of building a wafer fab is extremely high. Moreover, as chip manufacturing processes evolve, the cost of fabs continues to rise. The industry estimates that the cost of a modern fab is in the range of billions of dollars. For example, Intel’s two factories in Arizona are expected to cost $15 billion each, while Samsung’s fab in Taylor, Texas, is projected to cost $25 billion.

Regional Differences in Wafer Fab Costs

It’s also worth noting that the cost of building a wafer fab varies by region. In Asia, for example, due to a well-established supply chain, abundant talent, and policy support, the cost of building a fab is relatively lower. In regions like Europe, the U.S., and the Middle East, however, costs may be higher due to the need to import technology, train talent, and develop a complete supply chain.

(Photo credit: Intel)

To turn adversity around, Intel launched its latest AI accelerator, Gaudi 3, in late September. However, a report by the Economic Daily News indicates that the struggling giant has significantly slashed the chip’s shipment targets by over 30% for next year, which may severely impact orders for its Taiwanese supply chain.

According to the report, the move could be attributed to the Intel’s internal strategy adjustments and the fluctuation of customer demand, which prompts it to cut orders on Taiwanese companies such as TSMC, ASE Technology, and ASIC firm Alchip.

According to industrial sources cited by the report, Intel originally projected to ship 300K to 350K units of Gaudi 3 in 2025. However, the target has now been revised to 200K to 250K units, marking a reduction of more than 30%.

According to the report, after acquiring Israel-based AI chip company Habana Labs in 2019, Intel seems to be relatively conservative about their co-development of the next-gen AI accelerators. Intel’s cautious attitude is evident from its recent moves, such as expediting the conclusion of previous projects like Gaudi 2, as well as lowering the shipment target for Gaudi 3 next year.

Intel declined to comment on the matter, the report notes.

According to industrial sources cited by the report, the adjustment will pose limited impact to TSMC, which manufactures Intel’s Gaudi 3 with its 5nm node. While the demand for the foundry leader’s advanced nodes remains robust, other customers are expected to quickly fill the gap left by Intel.

In terms of IC packaging and testing services provider ASE and its subsidiary SPIL, as they also have a diversified client portfolio, with major tech companies placing orders, the capacity can be swiftly reallocated to minimize the impact, the report suggests.

Nevertheless, for those with smaller scales and a higher client concentration, the impact may be more significant. Taiwanese ASIC firm Alchip, which provides ASIC design services for Intel’s Gaudi 2 and Gaudi 3, therefore, may be more vulnerable to Intel’s potential shipment reduction, according to the report.

Unimicron, which serves as the primary supplier of substrates for Intel’s chips, may also be impacted by the fluctuation of Intel’s orders, the report notes. However, when asked about the potential impact, the company reaffirms its optimistic outlook regarding the second half of 2024, as it expects the demand for AI accelerators and optical modules to be stronger than the first half.

Currently, NVIDIA still holds the throne in the global AI chip market, with rivals such as AMD and Intel eagerly trying to catch up.

Intel’s latest effort, Gaudi 3, boasts 64 Tensor processor cores (TPCs) and eight matrix multiplication engines (MMEs) to accelerate deep neural network computations, and is specifically optimized for large-scale generative AI, according to its press release. It even claims to offer double the performance at the same cost compared to NVIDIA’s H100, the report says.

Read more

• [News] Intel’s Turnaround Hinges on This? Its First 18A Chip in High-volume Makes Official Debut
• [News] A Quick Roundup of Intel’s Five Core Businesses: Key Moves to Watch Next

(Photo credit: Intel)

The wild journey of Intel has yet to end, as tech giants have been approaching the company for potential acquisitions. In addition to Qualcomm, UK-based Arm is also said to inquire the possibility of acquiring the struggling chipmaker’s product division, according to the latest report by Bloomberg.

However, the report notes that Arm was informed by Intel that the division is not for sale, according to a source familiar with the situation.

Around mid-September, Intel settled down plans for restructuring after the board meeting, and revealed schemes to transform its foundry business into an independent unit with its own board. The strategy will allow its foundry business to explore independent sources of funding.

In April, Intel disclosed the financials for the foundry business for the first time, with an operating loss of USD 7 billion in 2023, a previous report by CNBC stated.

Arm, according to Bloomberg, showed little interest in Intel’s manufacturing operations. Instead, it reportedly expressed the intention to acquire Intel’s product division, which sells chips for PCs, servers, and networking equipment, though the request was turned down afterwards.

The move did make sense. With an 88% stake owned by SoftBank, Arm generates a significant portion of its revenue from selling chip designs to smartphone-related clients, including Qualcomm, Samsung and Amazon.

According to Bloomberg, Arm CEO Rene Haas targets to gain a foothold in various applications, such as personal computers and servers, in which Intel still takes a lead. A report by Reuters in June notes that Haas aims to capture 50% of PC market in five years.

If the company were to partner with Intel, it would reportedly enhance its market reach, while accelerate the shift toward selling more of its own products, Bloomberg observes.

Unlike Intel, which remains a bystander in the AI boom, Arm is considered to be a main beneficiary of the wave. After being acquired by Japan’s SoftBank in 2016 in a USD 32 billion deal, it went public in September, 2023, on Nasdaq, with a market valuation around USD 54 billion. A year after, its stock price has nearly tripled, with a market value exceeding USD 150 billion.

Representatives for both Arm and Intel declined to comment, Bloomberg notes.

On the other hand, another report by Financial Times, cited by MoneyDJ, reveals that Intel and the U.S. government are on track to finalize the USD 8.5 billion subsidy in direct funding under the CHIPS Act by the end of this year.

According to the reports, the two parties are working to complete the technical negotiations that have been ongoing for several months, while Intel is also undertaking large-scale cost-cutting measures. An insider familiar with Intel indicated that it wouldn’t be surprising if the negotiation results were announced around the upcoming presidential election.

Read more

• [News] A Quick Roundup of Intel’s Five Core Businesses: Key Moves to Watch Next
• [News] Update on Potential Investors of Intel: Apollo Rumored in; Broadcom Temporarily out

(Photo credit: ARM)

A few weeks ago, Intel is said to be seeking assistance from the U.S. government, as CEO Pat Gelsinger reportedly turned to Commerce Secretary Gina Raimondo to emphasize the significance of U.S. chip manufacturing. Now here’s the latest development: according to a report by Bloomberg, the U.S. House has passed a bill that exempts certain semiconductor manufacturing projects from federal permitting requirements, which is expected to benefit companies like Intel and TSMC.

According to Bloomberg, the move aims to alleviate concerns that environmental reviews and legal challenges could slow the construction of domestic chip plants.

The report notes that spurred by incentives from the 2022 Chips and Science Act, chipmakers have committed around USD 400 billion to build factories in the US. Companies such as Intel and TSMC are set to receive billions in funding from the act to support major projects nationwide. Other tech giants, including Micron, Samsung, SK hynix and GlobalFoundries, are also getting billions in U.S. subsidies.

However, many of the projects are facing delays. For instance, Intel’s Fab 52 and Fab 62 in Arizona are previously scheduled to be completed in 2024. However, the schedule may be reportedly delayed a bit, as the fabs are likely to begin operations later this year or in early 2025. The USD 20 billion project in Ohio, on the other hand, may be facing larger obstacles as Intel has delayed the plan after 2026 due to market downturns and delays in U.S. subsidies.

The pending awards, according to Bloomberg, currently require semiconductor construction sites to undergo National Environmental Policy Act (NEPA) reviews, a process that could last months or even years. Now it would be streamlined by the legislation passed on Monday.

The bill specifies three criteria for Chips Act-funded projects to qualify for a NEPA exemption, Bloomberg states.

First, projects must begin construction before the end of this year, a requirement that most major sites should be able to meet, except for a Micron’s project in New York, which has not yet met permitting requirements under the Clean Water Act and various state regulations, Bloomberg explains.

Second, projects that receive only loans—not direct grant funding—would be exempt from NEPA reviews, although this provision currently does not apply to any Chips Act incentive packages.

Finally, facilities would qualify for an exemption if grant funding constitutes less than 10% of project costs, a decrease from the previous threshold of 15% in an earlier version of the legislation, the report notes.

It is worth noting that the proposal, waiting for Biden’s nod, illustrates the dilemma the U.S. government is currently facing. For one thing, the U.S. authority is eager to expedite the construction of chip factories to reduce reliance on Asia, particularly Taiwan. On the other hand, the White House has set ambitious climate goals, and building semiconductor plants could complicate efforts to achieve these targets, according to Bloomberg.

Read more

• [News] Intel Reportedly Sought Commerce Secretary Raimondo’s Help over U.S. Reliance on TSMC

(Photo credit: Intel)

Rumors are going around the market about Intel’s next move, as names of big techs, such as Qualcomm, have been brought up as potential buyers. On the other hand, U.S.-based asset management firm Apollo is also said to be showing interest in making an equity-like investment worth up to USD 5 billion in Intel.

However, are the rumors making sense? What would be the wisest decision for Intel to make? Here’s a roundup of the semiconductor giant’s core businesses, and a quick analysis of its next steps.

Intel Might Be Working on Restructuring and Adjustments Months ago

Before Intel’s formal announcement of delaying its German project for two years, the company has actually been carrying out plans for restructuring discreetly and adjusting its strategy in the meantime, which can date back to months ago.

This could be further echoed with Intel’s decision in June to sell a 49% equity interest related to the Fab 34 in Ireland to Apollo. Then, in July, after reporting a loss of USD 7 billion in its manufacturing business for 2023, Intel stated that its investment in France and Italy could not be realized for the time being, and suspended relevant investment plans for chip plants and R&D centers.

Five Core Businesses to Watch: x86 Unlikely to be Sold

Still, the struggling giant has five core businesses, which consists of the following segments: x86 CPUs for the consumer and data center markets, the networking business, Intel Foundry Services (IFS), FPGA unit Altera and Mobileye for automotive driver-assist systems.

Among these, x86 CPU remains the most profitable segment, which is also Intel’s core strength. As the revenue contribution, gross margin, and operating margin of the product line stay healthy, Intel is unlikely to sell the segment in the current scenario.

On the other hand, though Intel has denied the plan to divest a majority stake in Mobileye last week, the self-driving company, which listed on Nasdaq in 2022, would be one of the easiest target for Intel to handle. Industry insiders believe that companies like Japanese semiconductor firm Renesas, U.S. chip giant Qualcomm, Taiwan-based MediaTek, or those aiming to enter the automotive electronics sector could be potential buyers.

As for Altera’s FPGA unit, which also previously denied rumors of being for sale, industry experts suggest that AMD could still be a potential buyer. Acquiring Altera would allow the U.S. chip giant to expand its FPGA product lineup, effectively integrating it with its existing portfolio.

In addition, the networking division could also be sold as a standalone entity, which might be easier for Intel to execute.

What is Qualcomm Eyeing for?                       

The latest reports by The Wall Street Journal and Bloomberg indicate that Qualcomm has reached out to Intel regarding a potential acquisition offer, which would rank as one of the largest-ever technology mergers if the deal were to take place.

However, if Qualcomm were to pursue the x86 business or the entire Intel, it would be a significant financial burden for the U.S. chip maker. Moreover, as a chip design company, Qualcomm would lack the expertise to manage the IFS foundry, while the sector still suffered from significant losses.

Additionally, the deal would require scrutiny from antitrust authorities in various countries, which could be particularly challenging in China.

Therefore, a more feasible option for Qualcomm would be to acquire Mobileye, as the company is already involved in automotive ADAS and infotainment ICs. Acquiring the networking division would be another reasonable choice.

What would be the next page for Intel? To sum up, the 56-year-old semiconductor giant still has solid products, such as the x86 CPUs. Its main issue lies in the slightly deviated strategic direction and execution over the past few years, particularly as it positions itself to compete with TSMC in the most advanced nodes. By addressing these missteps and making proper arrangements afterwards, the company still holds significant value.

Read more

• [News] Qualcomm’s Potential Takeover of Intel Might Have Minimal Impact on TSMC, But Not MediaTek
• [News] Update on Potential Investors of Intel: Apollo Rumored in; Broadcom Temporarily out

(Photo credit: Intel)