Intel Corp’s financial downturn is casting a shadow over the United States’ ambitious chip-making revival strategy, potentially complicating the company’s ability to secure crucial government subsidies. The situation poses a significant challenge to one of the most ambitious industrial policies in decades.
A Faltering Hope
The current administration in the United States had high hopes for Intel, believing that the company could lead the revival of the American semiconductor manufacturing industry. However, Intel’s worsening financial health has put the plan in serious jeopardy, raising concerns about the future of the industry and the government’s strategic objectives.
A Promising Start
Five months ago, President Joe Biden and Intel CEO Pat Gelsinger jointly announced a $2 billion subsidy plan in Arizona. However, the viability of this plan is now in question as Intel’s ability to secure the funds is increasingly uncertain. The implications are far-reaching, as Intel’s困境 could undermine the government’s key policy goal of establishing a secure cutting-edge chip supply chain for the Department of Defense and capturing 20% of the global advanced processor production by 2030.
Financial Woes
Intel is facing a more severe sales decline and cash flow crisis than anticipated, forcing the company’s leadership to consider more aggressive measures, such as potentially spinning off its manufacturing division or scaling back the construction of global factories. These changes could complicate Intel’s quest for government support at a critical time.
The Chips and Science Act
Under the Chips and Science Act passed in 2022, Intel was eligible for $8.5 billion in grants and $11 billion in loans, but only if the company met certain key milestones and passed a rigorous due diligence process. The process has been consistent for all applicants, ensuring that taxpayer funds go only to companies that truly deliver on their promises. However, none of the potential beneficiaries, including Intel, have received any funding to date.
Delays and Discontent
In ongoing negotiations, Intel has expressed dissatisfaction with the government’s delay in releasing funds and has urged for a faster process. However, according to insiders, Intel has refused to provide some of the information requested by government officials, which is necessary to assess the feasibility of its manufacturing plans.
The Department of Commerce, the overseeing agency for the Chips Act grants, has remained silent on the details of the negotiations. Meanwhile, Intel stated in a press release, We have made significant progress on our projects in Arizona, New Mexico, Ohio, and Oregon, and we look forward to finalizing the financing agreement as soon as possible.
Financial Results and Repercussions
Intel’s financial results, released on August 1, showed unexpected losses and a dim outlook, putting immense pressure on the company. The release of the report led to one of the most severe stock price drops in decades, with two major credit rating agencies downgrading Intel’s debt rating to near-junk status. Additionally, Intel announced plans to lay off approximately 15,000 employees, raising concerns among lawmakers who expected the company to help enhance the U.S. semiconductor workforce.
Future Uncertain
Insiders reveal that Intel will consider its next steps at a board meeting in mid-September. If the company decides to reduce the scale of its U.S. projects, the subsidies it receives are almost certain to change.
Political Implications
The internal turmoil at Intel could turn the landmark public-private partnership into a political burden. President Biden had announced in March that Intel would be the largest recipient of the Chips Act funds. The act allocates $39 billion for subsidies to domestic manufacturing of critical electronic components, along with billions more in loans and tax breaks.
Intel has not only secured a commitment for a quarter of the private sector’s funds but is also the exclusive beneficiary of a $3.5 billion project for defense and intelligence chip manufacturing. The company’s factory plans are crucial to the execution of the entire Chips Act.
Market Demand Over Political Promises
However, Intel’s expansion pace will be determined by market demand rather than solely by political commitments. Gelsinger has stated that the company’s current strategy is to first expand factory infrastructure and then gradually equip it with more expensive equipment based on clear market demand.
Challenges Ahead
For instance, in 2012, President Barack Obama announced at an Intel plant in Arizona that the facility would start operations the following year. However, Intel postponed the project until 2020, and in 2021, the company announced further expansion plans for the Arizona plant.
Mike Schmidt, the director of the Office of Semiconductor Programs at the Department of Commerce, acknowledged the challenges of the semiconductor industry’s high cyclicality and intense competition, emphasizing the need for flexibility.
Intel’s Future
Insiders reveal that Intel is eager to complete the deal and secure the first grant. The company has emphasized its significant investments and the adequate assurances it has provided for the overall roadmap. However, Intel still faces challenges in proving the strength of its products, especially with competitors like TSMC
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