Intel Strengthens Ties with China, Invests $300 Million to Expand Chip Operations

Intel Corp INTC announced plans to expand its chip packaging and testing facility in Chengdu, affirming its commitment to the mainland market despite a recent cybersecurity review recommended by a Beijing-backed group.

China remains Intel’s largest market, contributing 27% of its revenue in 2023, surpassing the 26% from the U.S.

The expanded facility will enhance server chip packaging and testing capabilities while adding a “customer solutions center” to boost supply chain efficiency, better support Chinese customers, and reduce response times, SCMP cites Intel China’s WeChat post.

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SCMP cites the city’s Reform and Development Commission’s WeChat post as stating that Intel will invest $300 million in its Chengdu-based entity, Intel Products (Chengdu), to fund the expansion.

Since its launch in 2003, Intel’s Chengdu plant has packaged and tested over half of its global laptop processors.

This stage, essential in semiconductor manufacturing, ensures product quality and reliability.

This expansion follows closely after the Cyber Security Association of China recommended reviewing Intel products sold domestically, pointing to past vulnerabilities in Intel’s central processors.

China’s retaliation follows the U.S.’s artificial intelligence technology sanctions on China, restricting the country from accessing high-end AI chips from Nvidia Corp NVDA and peers, citing national security concerns.

Intel recently reported a $1.6 billion second-quarter loss after a $1.5 billion profit the previous year, mainly due to softened demand in consumer and enterprise sectors, particularly in China.

Intel stock plunged over 52% year-to-date as it failed to capitalize on the enterprises’ AI shift.

KeyBanc analyst John Vinh highlighted Intel’s server market share decline to Advanced Micro Devices, Inc AMD. He also noted Intel’s absence of a budget-friendly AI CPU for mainstream AI PCs and the growth of Nvidia Corp’s NVDA Blackwell as additional challenges for Intel.

Reports indicated Intel is weighing strategic options, such as separating its product design and manufacturing divisions. The plan may also involve canceling factory projects and exploring mergers and acquisitions.

Qualcomm Inc QCOM recently postponed its strategic bid for Intel until after the November presidential election, a critical factor amid ongoing antitrust scrutiny and geopolitical issues with China.

Investors can gain exposure to Intel through Invesco QQQ Trust, Series 1 QQQ and SPDR S&P 500 SPY.

Price Action: INTC stock is up 0.70% at $23.08 at the last check on Tuesday.

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