Intel CEO Pat Gelsinger on Tuesday (23 March) announced expansion of the company’s semiconductor manufacturing capacity through two new fabrication factories in Arizona that will be set up at a cost of $20bn.

The new factories will commence production in 2024 and Intel’s foundry will offer a United States (US) and Europe-based alternative to Asian fab factories.

The news comes amidst a global chip shortage that has curtailed production targets in industries ranging from automobiles to electronics and concerns that the US is falling behind in semiconductor manufacturing.

Gelsinger announced the new fabs during Intel’s global “Intel Unleashed: Engineering the Future” webcast. During the event, he announced the evolution of Intel’s integrated device manufacturing (IDM) model strategy called IDM 2.0.

“Intel is the only company with the depth and breadth of software, silicon and platforms, packaging, and process with at-scale manufacturing that the customers can depend on for their next-generation innovations," Gelsinger said in a blog post.

"IDM 2.0 is an elegant strategy that only Intel can deliver – and it’s a winning formula,” he added.

Gelsinger also unveiled company's first 7nm chip, the long-delayed Meteor Lake, which will have its design finalized in the second quarter of this year.

Intel also announced that it will build a “foundry” unit that will manufacture chips for third party, “fabless” designers.

Intel said its foundry division will be called Intel Foundry Services and will be led by Randhir Thakur, currently a senior vice president in the company.

The announcement comes as a clear signal that Intel will continue to focus on manufacturing despite recent setbacks, especially its struggles with producing 7-nanometer chips.

Intel’s most advanced chips currently use a 14-nanometer or a 10-nanometer process while Taiwan Semiconductor Manufacturing Co (TSMC) is already setting up a massive state-of-the art manufacturing plant in southern Taiwan to produce 5-nanometer processor. 5-nanometer process are superior because more transistors can fit in the same sized chip, boosting power and efficiency.

Intel's waning prowess in microprocessor manufacturing came under increasing scrutiny as the company lost its prime position to Taiwan Semiconductor Manufacturing Co and South Korea’s Samsung Electronics Co Ltd.

In December 2020, activist hedge fund Third Point LLC, which holds $1bn stake in the company, called for the American chip-maker to explore strategic alternatives, including whether it should keep chip design and production under one roof.

The hedge fund had asked Intel to evaluate strategic alternatives, including whether it should remain an integrated device manufacturer and the potential divestment of failed acquisitions.

Intel currently operates four factories, called “wafer fabs,” in the United States. In addition to its site in Arizona, which is being expanded, it also has fabs in Massachusetts, New Mexico and Oregon. It also makes chips in Ireland, Israel and has a single fab in China.

National Security Dimension

On 24 February this year, President Joe Biden signed an executive order mandating a review of supply chains of critical goods, products and services to reduce dependence on China and other rivals.

Biden’s order initiated a 100-day review by the federal agencies of supply chains of key pharmaceutical ingredients, semiconductor chips, minerals and rare earths, and high-capacity batteries.

Biden also has indicated that boosting domestic semiconductor manufacturing is a priority for his administration. His administration hopes to fix ongoing chip shortages and address lawmaker concerns that outsourcing chipmaking had made the US more vulnerable to supply chain disruptions.

Biden's 100-day review is expected to boost American chip companies with additional government support and new policies.