Intel will retain majority ownership of new chipmaking factories in Arizona but will split the revenue withBrookfield Asset Management.
Brookfield Asset Management, the Canadian investment firm with $750 billion in assets, recently agreed to help build Intel’s new factories in Arizona, a rare arrangement that may grow in popularity.
Intel will fund 51% of the cost of constructing new chipmaking factories and retains a controlling stake in the financing vehicle that owns the facilities. Brookfield owns the remaining equity, while both companies split the revenue.
“The deal is unusual in the chip industry,” says Amit Thakur, a managing partner at Amax Capital. “But [it] has parallels in other sectors.” The revenue-sharing aspect is more commonly seen in mining, according to Thakur, and sometimes in hospitality and aviation.
Growing capital needs in the chip space have spurred the change. Building one factory for next-generation chips, which are tiny and complex, is estimated to cost more than $20 billion.
“I wouldn’t be surprised to increasingly see unorthodox transactions like this one,” says Julian Klymochko, CEO of Accelerate. Asset management firms have billions and “need places to allocate that capital.” Institutional investors like Brookfield traditionally allocate large amounts of capital to real estate and telecommunications assets, he adds.
For Intel, the deal may help lift the company out of a two-year slump. In July 2020, Intel touted that full-year revenue would likely be $75 billion. The actual amount hovered just below $77.9 billion—an 8.2% increase from 2019. However, the company’s shares continued to slide, even though the rest of the stock market rallied that month.
A six-month delay in the company’s launch of next-generation chips was enough to spook investors. Since then, CEO Pat Gelsinger—who replaced former chief Bob Swan—has been focused on transforming Intel from laggard to leader, despite companies from Taiwan and South Korea grabbing US market share.
Lawmakers are trying to help, too. President Joseph Biden signed legislation that provides more than $50 billion for domestic chip manufacturing. Intel lobbied for the bill.