Intel’s Financial Woes Threaten US Chip Strategy, Government Subsidies at Risk
By [Your Name], [Your Outlet]
The United States’ ambitious chip-making revival, led by Intel Corporation, is facing significant challenges due to the tech giant’s deteriorating financial health, potentially dealing a blow to one of the most ambitious industrial policies in decades.
The current administration had high hopes for Intel to spearhead the revival of the American semiconductor industry. However, Intel’s worsening financial situation is casting a shadow over the plans. This could be a major setback for the US government’s strategy to establish a secure cutting-edge chip supply chain for the Department of Defense and achieve a global production target of 20% for advanced processors by 2030.
Five months ago, President Joe Biden and Intel CEO Pat Gelsinger jointly announced a $2 billion subsidy program in Arizona. However, the viability of this plan is now in question as Intel’s ability to secure this funding becomes increasingly uncertain.
Intel is grappling with a more severe sales decline and cash flow crisis than anticipated, forcing the company’s leadership to consider more drastic measures, such as potentially spinning off its manufacturing division or scaling back the construction of global fabs. These changes could complicate the company’s quest for government support.
Under the Chips and Science Act of 2022, Intel was eligible for $8.5 billion in grants and $11 billion in loans, provided it met certain milestones and passed a rigorous due diligence process. However, none of the potential beneficiaries, including Intel, have received any funding yet.
In ongoing negotiations, Intel has expressed dissatisfaction with the government’s delay in releasing funds and urged for an expedited process. However, sources familiar with the matter reveal that Intel has refused to provide some of the information requested by government officials, which is crucial for evaluating the feasibility of its manufacturing plans.
The US Department of Commerce, which oversees the disbursement of funds under the Chips Act, has remained silent on the details of the negotiations. In a statement, Intel said, We have made significant progress on our projects in Arizona, New Mexico, Ohio, and Oregon, and we look forward to finalizing the financing agreement soon.
Intel’s earnings report released on August 1 showed an unexpected loss and a dim outlook, putting immense pressure on the company. Following the release, Intel’s stock experienced one of its worst declines in decades, with two major credit rating agencies downgrading its debt rating to near-junk status. Additionally, Intel announced plans to lay off around 15,000 employees, a worrying signal for a company meant to help strengthen the US semiconductor workforce, and it drew criticism from members of Congress.
We’ve been working hard to address these issues, Gelsinger said last week at an investor conference. Like all companies in the industry, we recognize that we must operate flexibly and efficiently.
Insiders reveal that Intel will review its next steps at a board meeting in mid-September. If the company decides to reduce the scale of its US projects, the subsidies it receives are almost certain to change.
The internal turmoil could make this iconic public-private partnership a political burden. In March this year, President Biden announced that Intel would be the largest recipient of funds under the Chips Act during a visit to Chandler, Arizona. The act allocates $39 billion in subsidies for the domestic manufacturing of critical electronic components, along with billions in loans and tax breaks.
Intel not only received a commitment of one-fourth of the private sector’s funding but also exclusive benefits of $3.5 billion for defense and intelligence chip manufacturing projects. Intel’s factory plans are crucial for the execution of the entire Chips Act.
However, Intel’s expansion pace will be determined by market demand, not just political commitments. Gelsinger stated that the company’s current strategy is to expand factory infrastructure first and then gradually equip it with more expensive equipment based on clear market demand.
For instance, in 2012, then-President Barack Obama announced at an Intel plant in Arizona that the facility would start operations the following year. However, Intel delayed the project’s kickoff until 2020, and in 2021, it announced further expansion plans for the Arizona factory.
Mike Schmidt, the director of the Office of Semiconductor Programs at the Department of Commerce, said in an interview at the beginning of August, We know the semiconductor industry is highly cyclical and competitive, and we must be flexible in responding to changes.
Regarding Intel, Schmidt added, We are satisfied with Intel’s expansion plans and the milestones we have set together. These milestones were clearly outlined in a preliminary agreement and personally announced by President Biden in March.
Insiders reveal that Intel hopes to complete the transaction and secure the first tranche of funding soon. The company has emphasized its significant investments in early negotiations and provided sufficient guarantees for the overall roadmap.
However, Intel still faces challenges in proving the strength of its products, especially with competitors like TSMC widely recognized for their technology. The company says that several businesses, including Broadcom, MediaTek, and Microsoft, are considering
Views: 0