Intel receives Canadian pension money

Intel will retain controlling interest in new chip fabs in Arizona but will share earnings with Brookfield Asset Management.

Brookfield Asset Management, the $750 billion Canadian investment firm, recently agreed to help build Intel’s new factories in Arizona, a rare deal that could gain popularity.

Intel will fund 51% of the cost of building new chip manufacturing plants and will retain 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,” said Amit Thakur, managing partner at Amax Capital. “But [it] has parallels in other industries.” The revenue-sharing aspect is more commonly seen in mining, and sometimes in hospitality and aviation, Thakur says.

Growing capital requirements in the chip area have driven the change. Building a factory for next-generation chips, which are tiny and complex, is estimated to cost more than $20 billion.

“I wouldn’t be surprised to see increasingly unorthodox deals like this,” said Julian Klymochko, Accelerate’s CEO. Wealth management firms have billions and “need places to allocate that capital.” Institutional investors like Brookfield traditionally invest large amounts of capital in real estate and telecommunications assets, he adds.

For Intel, the deal could help pull the company out of a two-year slump. In July 2020, Intel announced full-year revenue was expected to be $75 billion. The actual amount was just under $77.9 billion — up 8.2% from 2019. However, the company’s shares continued to fall even as the rest of the stock market rallied this 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 boss Bob Swan – has focused on turning Intel from laggard to leader, even as companies from Taiwan and South Korea are grabbing US market share.

The legislature is also trying to help. President Joseph Biden signed legislation providing more than $50 billion for domestic chip manufacturing. Intel has lobbied for the bill.

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