Intel (INTC) has made an important stride to regain strength in the chip manufacturing space. The company has struck a $30 billion funding agreement with Brookfield Asset Management (BAM). The first-of-its-kind Semiconductor Co-Investment Program will help finance the company’s chip manufacturing expansion plans.
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Benefits of Intel-Brookfield’s Landmark Agreement
Under the terms of the agreement, Intel will fund 51% of the cost of building new chip-making factories in Arizona. In addition, the chip giant will have a controlling stake in the combined entity that owns the new factories. In return, Brookfield Asset Management is to own the remainder of the stakes.
The new facilities are expected to support the long-term demand for Intel’s products. They will also provide capacity for the company’s Foundry Services’ customers. According to Intel’s Chief Financial Officer (CFO) David Zinsner, the landmark agreement should lead to increased flexibility.
According to the WallStreet Journal (WSJ), Bernstein Research’s analyst Stacy Rasgon believes the deal with BAM should help Intel preserve cash to continue paying dividends. The deal is also expected to avert the need to pursue other borrowings to fund expansion plans.
Last year, Intel confirmed plans to construct two new factories in Arizona as part of its $20 billion expansion plan. While the figure was an estimate, inflation has added to the cost. The WSJ reports that the company could spend as much as $100 billion each on new plants in Ohio and Germany.
Intel is not the only company pursuing aggressive chip investment plans. Taiwan Semiconductor Manufacturing (TSM) has already said it will spend $100 billion over three years to boost output. Samsung also plans to spend $205 billion on chips for biotech expansion.
Is Intel a Buy, Sell or Hold?
According to TipRanks’ analyst rating consensus, Intel is a Hold based on five Buys, 16 Holds, and nine Sells. The average Intel price target is $40.04. Intel stock price is expected to rise as analyst sentiments are bullish with almost 17.94% upside potential to current stock price levels.
Also, TipRanks’ Stock Investors tool shows that investor sentiment is currently Very Positive on Intel’s stock. Over the past 30 days, 6.3% of the best-performing portfolios tracked by TipRanks increased their exposure in Intel’s stock.
Final Thoughts
The $30 billion funding agreement with Brookfield Asset Management affirms Intel’s push to strengthen its competitive edge in chip manufacturing. In addition, the deal should help bolster the company’s balance sheet, and preserve capital, which should allow it to continue paying dividends.
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