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Intel breaks ground on new Valley fabs as White House seeks supply chain transparency

Intel officially kicked off construction on its two new semiconductor chip factories in Chandler on Friday, in a project that is expected to cost $20 billion and employ 3,000 people.  

Intel CEO Pat Gelsinger was on hand for the ceremony and he told the Business Journal that the company is cooperating with the Biden administration’s recent effort to get supply chain data from semiconductor companies.

Just yesterday, the White House raised the possibility of invoking the Defense Production Act to force compliance.

“We’re going to comply to the greatest extent we can with that request, but there may be confidential information with our customers and suppliers as well,” Gelsinger said on Friday. 

Gelsinger was part of a call with the White House yesterday, he said, focused on transparency in the semiconductor supply chain, which has become a key issue as the world experiences a shortage of these crucial parts.

The administration may utilize the Defense Production Act, a piece of 1950 wartime legislation, to force chipmakers to share this supply chain information, as originally reported by Bloomberg News on Thursday.

The White House’s transparency efforts were introduced to semiconductor companies as a voluntary program, according to Gelsinger, but he said the Biden administration may need to take “more aggressive steps” to gain supply chain insights.

“We’re going to do it to the greatest extent possible to support the administration’s efforts,” he said.

Looking forward, the most important thing, Gelsinger said, is building American chipmaking capacity and reducing reliance on producers in Asia.

Gelsinger, who took the helm at Intel in February, made these remarks after the groundbreaking ceremony in Chandler for the two upcoming factories, called Fab 52 and Fab 62.

Arizona’s strategic importance

Intel Corp. (Nasdaq: INTC) representatives said the company’s Chandler site, called Ocotillo Campus, is the largest semiconductor manufacturing site in the country with 12,000 employees in Arizona, and its strategic importance to Intel will only grow once these new fabs open.  

Gelsinger’s long-term vision for Intel’s success, called the IDM 2.0 strategy, was announced in March, and it includes the formation of a new foundry business, in which Intel will manufacture chips designed by other companies. The new fabs in Chandler will be the first in Intel’s system with dedicated capacity just for the foundry business.

Intel, and its Arizona operation, have become a matter of national importance, since computer chips end up in everything from cars, to fighter jets and cellphones. But Intel is wary of putting all its eggs in the Arizona basket.

In August, Gelsinger told the Washington Post that the company plans to build a “mega-fab” in the U.S. with six to eight factories, directly employing 10,000 people and spending about $100 million to make it happen over the course of a decade.

On Friday, Gelsinger said the company is still scouting locations and reviewing proposals for that next mega site, and hopes to announce the location later this year, but it’s not likely to be in Arizona.

“We’re probably favoring another part of the country, just for some amount of risk and balance across the sites,” he said. 

New fab on the block

Intel has been a Valley presence for more than 40 years, and even before that Motorola set up shop here in 1949. Over the decades, an ecosystem of semiconductor suppliers has sprung up in and around Phoenix.

The most notable newcomer on the scene is Taiwan Semiconductor Manufacturing Co., the largest chipmaker in the world. Most of TSMC’s factories are on the island of Taiwan, but the company chose Phoenix as the site for its first ever U.S.-built factory.

The forthcoming TSMC fab is already under construction in north Phoenix in a stretch of previously undeveloped desert directly north of the Loop 303 freeway. A clutch of cranes are visible from afar, and the local streets have busied with construction traffic in recent weeks.

In its public communications TSMC says the factory will cost $12 billion to construct, but the Business Journal has reported that the company may build additional fabs at the site, bumping the project cost up to $35 billion.

Pass the chips, please

The Covid-19 pandemic sparked a worldwide shortage in computer chips as demand for electronics picked up, supply chain efficiency fell and workers got sick.

Even as vaccines are distributed in many parts of the world, the semiconductor shortage will not resolve itself quickly. Fabs take months to go through a production run and it takes years to bring a new fab online.

On Thursday, industry group IPC released a global survey that found 58% of respondents did not expect the chip shortage to subside until 2022 or beyond and 90% of respondents said their prices paid to suppliers had increased because of the shortage.

Legislators, both in Arizona and Washington D.C., have made American semiconductor production a renewed priority during the pandemic, but major funding has yet to be appropriated. 

In June, the Senate approved a bill that includes $52 billion for U.S. chipmakers, thanks to votes from Arizona Sens. Sinema and Kelly, but that bill has yet to be taken up in the House.

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