Intel’s $100B Ohio dilemma: Why it must spend a lot now to avoid spending more later

Forget the politics. Here’s why Intel’s new factories in Ohio are crucial to the company’s future and its hope of regaining the chip manufacturing leadership spot.

Ohio Gov. Mike DeWine (left) accepts a silicon wafer from Intel CEO Pat Gelsinger on Friday, Jan. 21, 2022, in Licking County, Ohio.

Intel is doubling down on its own contract manufacturing business for fabless chipmakers.

Photo: Walden Kirsch/Intel Corporation

Intel’s plans to invest up to $100 billion in a new group of chip factories outside Columbus, Ohio, will have a much greater impact on the future of its manufacturing division compared to any short-term political or supply-chain concerns it might solve.

To hear President Joe Biden, U.S. Commerce Secretary Gina Raimondo and Ohio Governor Mike DeWine tell it, the new factories — known as fabs in this world — are going to help fix inflation, make the U.S. more competitive, drive down the soaring cost of cars, ease the chip supply-chain shocks and improve U.S. national security. That’s a lot, even for one of the biggest projects in Intel’s storied history. It will be years before that capacity comes online, and whether a new chip factory in Ohio could actually solve any or all of those issues is debatable.

Put aside the politics; the stakes for Intel’s efforts in the Buckeye state couldn’t be more clear.

The company missed out on manufacturing billions of smartphone chips over the last decade, failing to make its own processors or win manufacturing contracts from other mobile giants. That cost the company enormously — Intel didn’t benefit from the technical manufacturing know-how that comes along with making chips at even higher volumes than its PC or server businesses produce. After a prolonged period of disarray, chip manufacturers such as TSMC and Samsung seized upon Intel’s weakness and leapfrogged ahead of the Silicon Valley giant’s one-time manufacturing leadership position.

Under Intel CEO Pat Gelsinger, the company has vowed to regain that former status, turning around its own products’ performance in the short run and regaining manufacturing supremacy down the road. “Intel is committed to restoring end-to-end leadership, innovation and manufacturing here in the U.S.,” Gelsinger said Friday. “We are doing our part, but we can't do it alone.”

To get there, Intel is doubling down on its own contract manufacturing business for fabless chipmakers. And it has embraced the extreme ultraviolet lithography technology others such as TSMC have used to successfully make advanced chips.

Ohio is a significant component of that comeback plan. As part of the company’s renewed push in manufacturing, Intel has already announced a $20 billion expansion of its sprawling factory site in Arizona as well as a $3.5 billion expansion of its packaging site in New Mexico. It has also said recently that it plans to announce two new sites in Europe in the coming months, and may invest as much as $95 billion there over the next decade.

By themselves, Intel’s Ohio plans aren’t a sure bet that it can regain its position of manufacturing leadership, but they are a start.

The first factory isn’t set to come online until 2025 and it will probably take $20 billion in investment to buy Intel enough capacity to start producing 40,000 wafers a month of advanced manufacturing capacity, according to estimates by Harvard Business School professor Willy Shih. Right now, Shih estimates Intel’s highest-volume factories are cranking out around 100,000 wafers a month.

But getting to high volume production in Ohio will be quite expensive as Intel invests in even-more-advanced manufacturing technology. And it’s not the only chipmaker striving to lead this industry.

Moore’s second law

Intel’s bets on Ohio, Arizona and elsewhere are a huge risk for the company. But today’s massive price tag will almost certainly be dwarfed by what it will have to spend in the future to stay competitive, according to a lesser-known law articulated in 1995 by Intel co-founder Gordon Moore.

His first “law” is widely known and cited: Moore observed about 60 years ago that the number of transistors printed onto an integrated circuit will roughly double every two years, and the machines they power will get cheaper. That observation held true for a very long time but today, its veracity is a matter of debate among the chip giants.

Moore published another important paper in 1995 with a different and potent observation about semiconductor manufacturing. Moore had begun to worry about the costs of the tools needed to make chips, which had begun to increase at an exponential rate. He was concerned the trend would continue to the point where it would be economically impossible to build new factories.

A rendering shows early plans for two new leading-edgeIntel's proposed chip-making campus in Ohio is a key part of its future plans. Image: Intel Corporation

“The rising cost of the newer technologies is of great concern,” Moore wrote. “Capital costs are rising far faster than revenue in the industry. We can no longer make up for the increasing cost by improving yields and equipment utilization. Like the ‘cleverness’ term in device complexity disappeared when there was no more room to be clever, there is little room left in manufacturing efficiency.”

Moore’s second-most-famous observation hasn’t quite come true for Intel and others, yet. But the latest generation of tools has an eye-popping sticker price, and are only getting more costly.

‘A high stakes game’

Intel has been secretive about the mix of chips it plans to fabricate at its forthcoming Ohio sites, but has said that it plans to deploy next generation EUV tech there. Existing EUV machines are expensive, costing roughly $180 million a piece. The next generation, called high-numerical-aperture EUV, will cost roughly twice that, and Intel has already committed to purchase the first tool exclusively made by the Dutch ASML.

Lithography tools such high-NA EUV machines have long been the most expensive bottleneck for manufacturing output. But fabs need hundreds of other tools, too, which can cost tens of millions each.

“You thought $150 million for a tool takes your breath away, but then you see how much Intel is paying for the high-NA [equipment] too, and it’s crazy,” Shih said. “At the [size of Intel’s Ohio fabs] they’ll have like 1,000 different tools, and they cost a couple million to tens of millions each.”

But while those prices seem exorbitant, the real risk is that Intel might not be spending cash on manufacturing at the same rate as some of its rivals. Late last year, Intel said the company’s capital spending plans for 2022 would be as much as $28 billion, likely including some of the costs of beginning construction in Ohio. The other six Ohio fabs, which represent the remainder of the $100 billion overall cost, hinge on Congress funding a $52 billion subsidy program that will help Intel defray the price.

“We think $20 billion is a lot of money,” Shih said. “The easiest thing for people to think is that Intel is going to put up all this money and catch up. But, is it going to catch up, or just keep up?”

TSMC already can produce many more wafers than Intel — roughly a million a month — and has promised to spend as much as $44 billion in 2022. Those tens of billions will expand its fabs in Taiwan and China and also includes part of a $12 billion factory plant outside of Phoenix.

Samsung, one of the other companies that uses EUV technology to make advanced chips, will spend $42 billion on capital equipment this year. Samsung also has plans for U.S. manufacturing, and has committed $17 billion to a new facility in Taylor Texas that is expected to begin operations in 2024.

“This is a high-stakes game, and it takes a lot of money, just because the equipment is so expensive and the technology is so hard,” Shih said.


Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.


Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories