Intel nears $11 billion deal with Apollo for Ireland factory, WSJ reports

[hist78]

The deal is for joint ownership. Brookfield's investment does not show up as debt. Who told you that it does? Debt refers to loans or selling debt instruments, like bonds.

I agree, but this is probably overall the least expensive option for funding the IFS build-out they could find.

Yes, Intel wants people think it's a joint venture with Brookfield. In a more glamour way, Intel calls this type of deals as pat of "Smart Capital" strategy.

But in reality, it is a "debt".

"JV Treatment: Fitch will attribute to Intel's debt quantum the net capital contributions from its JV partner since the subsequent distributions to Brookfield are debt-like in that they are subject to a fixed minimum and continue until the partner's ownership stake is fully depleted. "

Source: https://www.fitchratings.com/resear...l-at-a-f1-outlook-remains-negative-16-11-2022

As usual, whenever Intel uses a fancy term in the boring accounting operations, there are some untold stories Intel tries to obscure.

 

[blueone]

Yes, Intel wants people think it's a joint venture with Brookfield. In a more glamour way, Intel calls this type of deals as "Smart Capital" strategy.

But in reality, it is a "debt".

No it's not. This is a financial risk rating service assessing Intel's financial position by calling the distributions to Brookfield "debt-like", but that is not what you said, which was "it will be counted as a debt (not the additional capital from shareholders) on Intel's accounting book". That is a false assertion.

JV Treatment: Fitch will attribute to Intel's debt quantum the net capital contributions from its JV partner since the subsequent distributions to Brookfield are debt-like in that they are subject to a fixed minimum and continue until the partner's ownership stake is fully depleted. "

Source: https://www.fitchratings.com/resear...l-at-a-f1-outlook-remains-negative-16-11-2022

As usual, every time when Intel uses a fancy term in the boring accounting operations, there are some untold stories Intel tries to obscure.

You really should stick to the facts and what you know.

 

[hist78]

No it's not. This is a financial risk rating service assessing Intel's financial position by calling the distributions to Brookfield "debt-like", but that is not what you said, which was "it will be counted as a debt (not the additional capital from shareholders) on Intel's accounting book". That is a false assertion.

You really should stick to the facts and what you know.

Moody's, Standard & Poor's, and Fitch are three credit rating agencies used by government agencies, banks, investment funds, and other institutions to evaluate an organization's finical standings.

Just like TSMC in Taiwan, NXP in Netherlands, or TI, Intel, and Globalfoundries in the US, these three credit rating agencies follow the same Generally Accepted Accounting Principles (GAAP) and government regulations. If Fitch treats Intel/Brookfield deal as a "debt-like" transaction, there is a very high possibility that Intel is doing the same thing. Otherwise there will be some legal, creditability and analytical problems.

"JV Treatment: Fitch will attribute to Intel's debt quantum the net capital contributions from its JV partner since the subsequent distributions to Brookfield are debt-like in that they are subject to a fixed minimum and continue until the partner's ownership stake is fully depleted. "

Source: https://www.fitchratings.com/resear...l-at-a-f1-outlook-remains-negative-16-11-2022


As a credit rating company like Fitch, it can demand some of the details from the Intel/Brookfield contract. Three interesting findings from the Fitch's report:

1. Intel guaranteed Brookfield a minimum investment return.

2. Additionally Intel will repay the whole Brookfield's investment during a period of time.

3. There is a preset time and/or obligation to allow Brookfield to exit out with the full investment amount plus dividends/interest.

In short, it's a debt.

 

[blueone]

Moody's, Standard & Poor's, and Fitch are three credit rating agencies used by government agencies, banks, investment funds, and other institutions to evaluate an organization's finical standings.

Just like TSMC in Taiwan, NXP in Netherlands, or TI, Intel, and Globalfoundries in the US, these three credit rating agencies follow the same Generally Accepted Accounting Principles (GAAP) and government regulations. If Fitch treats Intel/Brookfield deal as a "debt-like" transaction, there is a very high possibility that Intel is doing the same thing. Otherwise there will be some legal, creditability and analytical problems.

"JV Treatment: Fitch will attribute to Intel's debt quantum the net capital contributions from its JV partner since the subsequent distributions to Brookfield are debt-like in that they are subject to a fixed minimum and continue until the partner's ownership stake is fully depleted. "

Source: https://www.fitchratings.com/resear...l-at-a-f1-outlook-remains-negative-16-11-2022


As a credit rating company like Fitch, it can demand some of the details from the Intel/Brookfield contract. Three interesting findings from the Fitch's report:

1. Intel guaranteed Brookfield a minimum investment return.

2. Additionally Intel will repay the whole Brookfield's investment during a period of time.

3. There is a preset time and/or obligation to allow Brookfield to exit out with the full investment amount plus dividends/interest.

In shot, it's a debt.

You were incorrect in your original statement, and now you're trying to defend it with technical-sounding though incorrect arguments that do not support your case, since you don't even seem to understand what a debt rating company is or does. I'm fine with you thinking and even advocating that these arrangements are similar to debt, but positioning your derivative opinion as a fact about corporate accounting is still incorrect, no matter how you wrap it up in misused jargon. Debt has a specific meaning in corporate accounting. Rating companies are making subjective assessments.

 

[hist78]

You were incorrect in your original statement, and now you're trying to defend it with technical-sounding though incorrect arguments that do not support your case, since you don't even seem to understand what a debt rating company is or does. I'm fine with you thinking and even advocating that these arrangements are similar to debt, but positioning your derivative opinion as a fact about corporate accounting is still incorrect, no matter how you wrap it up in misused jargon. Debt has a specific meaning in corporate accounting. Rating companies are making subjective assessments.

Chill! My friend. We are talking about Intel, not about you or me.

 

[TBiggs]

Intel has a broken business currently. It has to invert like TSMC for advanced technology and doesn’t have volume nor technology pricing to fund their development. Cash is running low so no alternative but socket some rich fat cats to fork over money for rights to future wishful revnue. Intel needs to execute perfectly and hope their Western development approach will be TSMCs Eastern one and somehow their western manufacturing culture can compete with TSMCs widely successful eastern one.

Right now I’d give Intel a 1 in 6 to 1 in 8 chance of become profitable by 2030. Of course a blockade could change the odds radically

 

[tooLongInEDA]

Intel has a broken business currently. It has to invert like TSMC for advanced technology and doesn’t have volume nor technology pricing to fund their development. Cash is running low so no alternative but socket some rich fat cats to fork over money for rights to future wishful revnue. Intel needs to execute perfectly and hope their Western development approach will be TSMCs Eastern one and somehow their western manufacturing culture can compete with TSMCs widely successful eastern one.

Right now I’d give Intel a 1 in 6 to 1 in 8 chance of become profitable by 2030. Of course a blockade could change the odds radically

Intel is already profitable ! Historically fantastically profitable. They could run the x86 business as a hugely profitable cash cow for years if they went fabless now. But they are not pursuing this "clear the decks" strategy.

The real question is whether they'll see a return on the multi 10bns going into the new fabs. And who's picking up the tab if they don't (I suggest US/other country taxpayers would take take the major hit, then Intel and only then the PE boys).

 

[Markwrob]

These deals Intel has entered with the PE firms have me wondering whether Intel is required to maintain certain profit margins now. And will Intel trim headcount to meet those goals if profits fall short.

If so, this would set up the way Broadcom (AVGO) takes over firms. The stakes get very high for the workforce in those acquisitions.

Some may argue Intel needs such a focus. I can only wish Intel good luck here.

 

[Mooredaddy]

All I know is PE firms don’t operate out of the goodness of their hearts. These deals have to be sufficiently in their favour in order for them to even be interested. They will extract their pound of flesh no matter if intel continues struggling or not. Intel calls this “smart capital” but it’s really “desperate capital”. Intel doesn’t have the cash for these sort of builds and is taking these deals to sell future profits in addition to increasing its debt load. If this goes poorly it will go spectacularly poorly….

 

[TBiggs]

In response to tooLongInEDA

Intel, I feel is like GM a few years ago, terrible inferior products but still made money with inferior manufacturing.

The product team has been hampered by lagging technology and poor IP/PDKs as well as worst manufacturing cost. A full move to TSMC would have made for a most interesting comparison to AMD, Nvidia and maybe even Apple. Likely even better competition and exposure of who is better and better products for all. But we are on another narrative with Intel looking to bring it all back in and rebuild both competitive technology and scale and Foundry to pay for it.

Their fabs and IFS is burdened with three decades of bloat and lack of external customer can do. Intel4/Intel3 are just starting compared to TSMC N4 and N3 which have a huge scale and three year head start. At least Pat and Dave have come clean it will be the end of the decade before they reach parity and even then it might not be enough. They won’t have scale and will need either tariffs or subsidies to be competitive IMO

 

[hist78]

All I know is PE firms don’t operate out of the goodness of their hearts. These deals have to be sufficiently in their favour in order for them to even be interested. They will extract their pound of flesh no matter if intel continues struggling or not. Intel calls this “smart capital” but it’s really “desperate capital”. Intel doesn’t have the cash for these sort of builds and is taking these deals to sell future profits in addition to increasing its debt load. If this goes poorly it will go spectacularly poorly….

For the two Intel Arizona fabs involved in the Brookfield contract, Intel guaranteed those two fabs minimum quantity of weekly wafer start, maximum inventory allowed, repay a of minimum principal throughout a period of time, and minimum dividends/interest paid to Brookfield. To me, it takes away a lot of global operational flexibility and potentially at a higher cost.

Also, will Intel Product/Deign division be forced to use these two fabs in order to help Intel Corporate to fulfill its contractual obligation with Brookfield? Even if TSMC, Samsung, or other Intel's fabs are better to fit its needs for a particular product?

Now Intel is adding Ireland fabs into this practice. Is Intel creating multiple warlord zones inside of Intel?

 

[Daniel Nenni]

For the two Intel Arizona fabs involved in the Brookfield contract, Intel guaranteed those two fabs minimum quantity of weekly wafer start, maximum inventory allowed, repay a of minimum principal throughout a period of time, and minimum dividends/interest paid to Brookfield. To me, it takes away a lot of global operational flexibility and potentially at a higher cost.

Also, will Intel Product/Deign division be forced to use these two fabs in order to help Intel Corporate to fulfill its contractual obligation with Brookfield? Even if TSMC, Samsung, or other Intel's fabs are better to fit its needs for a particular product?

Now Intel is adding Ireland fabs into this practice. Is Intel creating multiple warlord zones inside of Intel?

I really don't think Intel will use TSMC after N3. Intel will have plenty of 18A capacity and yes Pat needs to fill the fabs that are financed. TSMC will want a premium for an Intel N2 wafer agreement so that will probably not happen.

 

[hist78]

I really don't think Intel will use TSMC after N3. Intel will have plenty of 18A capacity and yes Pat needs to fill the fabs that are financed. TSMC will want a premium for an Intel N2 wafer agreement so that will probably not happen.

It makes sense but it circles back to the same old problem Intel faced: Is Intel Product/Design division free to choose between Intel Foundry and external foundries based on cost, performance, availability, capacity, technologies, and market demands?

If Intel Product/Design division is compelled to use Intel Foundry because Intel Foundry has too much capacity idling or because Intel needs to fulfil its contractual obligation with a private equity fund to maintain a minimum utilization at a particular fab, it's the same old Intel IDM business model that brought so many troubles to Intel.