The U.S. semiconductor company Intel recently made headlines by securing $7.9 billion from the federal government under the CHIPS Act, albeit $600 million less than its initial agreement. The long-anticipated announcement by the Biden administration took place on November 26, with Commerce Secretary Gina Raimondo expressing the significance of the funds, emphasizing, "For the first time in a long time, American workers will manufacture and package semiconductors... on American soil." This decision marks the largest direct subsidy granted through the CHIPS Act, aimed at revitalizing the domestic semiconductor industry.
Intel’s funding will be utilized to aid its chip manufacturing endeavors across multiple states including Ohio, Arizona, New Mexico, and Oregon. Approximately $1 billion of the total funding is set to be received by the close of this year. This program not only aims to bolster Intel's production capabilities but also to help the country reduce its reliance on foreign semiconductor manufacturing, which has become increasingly concerning due to global supply chain disruptions ranging from natural disasters to geopolitical tensions.
Despite the sizeable subsidy, Intel’s reduced funding reflects the company’s recent business struggles, including postponed investments and projects, particularly affecting the completion timelines for its Ohio semiconductor plant, which has been pushed back to after 2030. The Arizona facility is also facing setbacks. Amidst these challenges, Intel has opted not to pursue the previously negotiated $11 billion policy loan, choosing instead to focus on securing about $3 billion through military contracts for producing advanced semiconductors.
This shift raises concerns not just for Intel but also for its competitors, namely South Korean giants like Samsung Electronics and SK Hynix, who are still awaiting subsidy decisions from the U.S. government. These companies, much like Intel, are trying to navigate the volatile semiconductor market, facing strict conditions and increasing scrutiny surrounding government funding and support.
The CHIPS Act itself is part of a broader governmental strategy to revamp the semiconductor industry within the United States. Previously, the U.S. accounted for only 12% of global semiconductor production as of 2020, which is alarmingly low considering the industry’s pivotal role during the COVID-19 pandemic when supply shortages were widely felt. The Biden administration’s emphasis is clear: the intention is not just to boost production but to secure supply chains and reduce vulnerabilities by investing heavily within the country.
Intel’s CEO Pat Gelsinger has vowed to employ these funds smartly by engaging initiatives aimed at enhancing the company’s competitive edge against rivals such as TSMC and Samsung. Gelsinger's plan involves increasing production capacity and pivoting to new business models like contract manufacturing for third parties, which weathered challenges throughout the year. Intel’s stock, down by 51% within the same timeframe, mirrors the struggles it’s facing amid its restructuring efforts.
Additional stipulations surround the funding as well. Under the agreement, Intel must eschew stock buybacks for five years, reinforcing the government's commitment to ensuring the funds lead directly to investment and job creation within the domestic semiconductor space. While this marks only the beginning, the success of this venture will depend on Intel's ability to execute its expansion plans and efficiently meet the allocated milestones set forth by the CHIPS initiative.
Critics of the Federal funding program argue against its effectiveness, calling ideas like the CHIPS Act ‘wasteful subsidies’ without guaranteed results, especially as future administrations loom with the potential for significant policy shifts. Vivek Ramaswamy, designated to oversee government efficiencies for the incoming administration, has expressed skepticism about such contracts. His viewpoint adds pressure on current programs to showcase tangible outcomes, especially as criticism mounts over government spending.
These developments place Intel amid not only domestic expectations but also international competitive pressures. The semiconductor market is notorious for its fast-paced evolution, and Intel must navigate this competitive terrain shrewdly to reclaim its former glory. With the global spotlight on semiconductor production, the upcoming years stand to be pivotal for Intel as they chart their course to resurgence.
