To fund its chip-making goals, Intel is resorting to financial engineering.
The business signed a binding deal on Tuesday with a Brookfield Asset Management affiliate to spend up to $30 billion in two "leading-edge" chip facilities in Chandler, Arizona. According to the terms of the agreement, Intel will fund 51% of the project, while Brookfield will fund the other 49%.
According to a news release, Intel will obtain majority ownership and operational management of the two plants, which may be utilized for Intel's products or by its foundry clients. The transaction is scheduled to be finalized before the end of the year.
Intel anticipates that the collaboration will bring a $15 billion cumulative boost to its adjusted free cash flow over the next several years as plants are built and manufacturing ramps up.
In early trading Tuesday, Intel shares increased 0.8% to $34.12, while the S&P 500 was marginally greater.
During a conference call with Wall Street investors, Intel executives stated that Brookfield would get a portion of the cash flows generated by the plants once they are operating. According to the business, the entire cost of the fundraising arrangement will be higher than the cost of debt but lower than the cost of equity for Intel, with a range of 4.4% to 8.5%.
"Our arrangement with Brookfield is a first in our industry, and we think it will allow us to improve flexibility while keeping capacity on our financial sheet to create a more diverse and robust supply chain," said CFO David Zinsner in a statement.
Intel has had a difficult quarter. The business reported June-quarter financial results last month that fell significantly short of Wall Street expectations. It also issued a dismal view for the current quarter and dramatically decreased its full-year prediction at the time.
The corporation blamed a worsening macroeconomic situation but also admitted that some of its problems were self-inflicted owing to product execution difficulties.
An Intel official stated earlier this year that the manufacture of its next-generation server CPU would begin later than expected due to the company's need for extra testing time.
The corporation has embarked on a radical turnaround strategy. It is developing its foundry business and has outlined an ambitious product roadmap for the future. The agreement with Brookfield brings the plans closer to completion at the expense of some future financial benefits.
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