Chip giant Intel (NASDAQ:INTC) is a type of chip company that's known as an integrated design manufacturer (IDM). This is just a fancy way of saying that the company not only designs its own chips, but it manufactures them, too. 

Building computer chips is an incredibly complex and expensive endeavor that only a few companies can justify, which is why the vast majority of chip companies follow a fabless model, which means that they outsource production to one of the handful of contract chip manufacturers that's left standing. Intel, however, generates enough revenue from chip sales each year -- the company is expecting its 2018 revenue to come in at $71.2 billion -- to be able to make the economics of in-house chip manufacturing work.

An Intel Core i9 processor.

Image source: Intel.

Intel builds the bulk of the chips that it sells in house, and, as such, it needs to invest billions of dollars in capital expenditure, or capex, to make sure it has enough production capacity to build all of the chips that its customers demand. During its most recent earnings release, the company -- for the third time this year -- raised its capital expenditure forecast. 

Let's take a closer look at what's going on.

A big capex bump

When Intel reported its fourth-quarter results in January, it told investors that it was planning to rake in $65 billion in revenue and lay out $14 billion in capital spending. However, in April, the company bumped up its full-year revenue projection to $67.5 billion and, along with it, its capital expenditure forecast to $14.5 billion. As the good times rolled and the company raised its revenue guidance in July to $69.5 billion, it ratcheted up capex again to $15 billion.

Today, after increasing its 2018 revenue guidance to $71.2 billion, it cranked up its projected 2018 capex to $15.5 billion. 

What's even more interesting is that with each of these capex forecasts, the company would also provide a "net capital deployed" figure, which the company said in the footnotes is "full-year capital spending offset by expected prepaid supply agreements within NSG." (NSG is short for "non-volatile memory solutions group," which sells NAND flash- and 3D XPoint-based storage products.)

The delta between Intel's capex guide and its "net capital deployed" guidance was $2 billion between its earnings release for the fourth quarter of 2017 and that for the second quarter of 2018. That figure actually dropped to $1.5 billion when the company reported its third-quarter results, which seems to indicate two things. 

First, it would indicate that Intel is expecting $500 million less in memory-related prepayments than it did back in July, suggesting a reduction in memory-related capex. This wouldn't be a surprise considering that NAND flash prices are on the decline, and other players seem to be scaling back their own NAND-related capex. Micron (NASDAQ:MU) CFO David Zinsner said on the company's Sept. 20 earnings call that it has "cut back our fab equipment capex for NAND in fiscal 2019 compared to fiscal 2018 levels."

Western Digital (NASDAQ:WDC) CEO Steve Milligan said on the company's Oct. 6 earnings call that "in response to these conditions, we are making an immediate reduction to wafer starts and delaying deployment of capital equipment."

If I'm right that Intel has scaled back its memory capex by $500 million for the year while boosting its full-year capex to $15.5 billion from $15 billion in July, then this suggests that the company has actually increased its logic-related capex plans by about $1 billion since July. 

This isn't surprising

The additional -- and significant -- increase in logic capex isn't surprising. The company currently finds itself in a situation in which it simply can't produce enough chips to meet all of the demand it's seeing. In the short term, Intel is prioritizing the production of its Xeon data center chips and its Core processors at the expense of its low-end PC and Internet of Things business. Over the long term, the company would only be hurting itself if it didn't invest in enough capacity to be able to sell products to everyone willing to hand Intel cold, hard cash for them. 

It's also worth noting that during the call, Intel interim CEO and CFO Bob Swan provided some initial insights into how the company's capex will trend in 2019. Swan said that "at the macro level, as we think into 2019, we expect logic capex to likely be a little higher, and memory capex, despite building self-sufficiency on Optane, to be a little lower." 

In other words, Intel's investments in its ability to build logic chips, such as processors and cellular modems, look set to increase in 2019 from already robust levels in 2018.

Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.