Intel and the US set to seal $8.5B CHIPS Act funding

Intel is on the verge of finalizing an $8.5 billion funding deal with the US government, under the CHIPS and Science Act, as part of an effort to boost domestic semiconductor manufacturing amid growing global competition, a Financial Times report said.

The deal, which has been in negotiation for months, would represent the largest subsidy package awarded to date under the act, which aims to reduce US reliance on foreign chip production and strengthen the country’s semiconductor supply chain.

According to the report, the deal could see a closure by the end of the year as the discussions were “at an advanced stage”. However, there “was no guarantee it will be finalized before the end of the year,” the report said citing two sources.

A request for comment from Intel remains unanswered.

In March 2024, the Biden Administration and Intel signed a preliminary memorandum of terms (PMT) for the $8.5 billion funding. This support package is part of Intel’s larger commitment to invest more than $100 billion in expanding its US manufacturing footprint, including building new chip plants in Arizona, Ohio, Oregon, and New Mexico.

The deal also comes with up to an additional $11bn in loans from the US government, likely to help Intel position itself as a critical player in the AI era of semiconductor technology.

The funding comes at a crucial time for Intel, which has been navigating financial struggles stemming from its massive multibillion-dollar investments in manufacturing expansion. With disappointing revenue in its PC and server chip business, Intel has cut costs and paused some projects, including a major initiative in Germany.

The company is also dealing with recent interest from Qualcomm and Apollo Global Management, which have reportedly explored potential investment opportunities in Intel.

Broader impact on the US semiconductor landscape

The funding is seen as the Biden administration’s strategic move to reduce dependence on foreign semiconductor supply chains.

“Intel holds strategic importance for the US as the only major US-headquartered semiconductor manufacturing company,” said Pareekh Jain, CEO of Pareekh Consulting. “Most other leading semiconductor manufacturers are based in Taiwan and South Korea. Maintaining semiconductor manufacturing within the US is vital for both national security and strategic interests.”

The US government’s support for Intel underscores the importance of maintaining American leadership in semiconductor technology.

Intel’s success is crucial not only for the company itself but for the broader US semiconductor ecosystem. With AI set to drive future demand for advanced chips, Intel’s manufacturing capacity and technological innovations will play a key role in maintaining US competitiveness in the global market.

“This agreement marks one of the largest investments ever in US semiconductor manufacturing, which will create over 30,000 good-paying jobs and ignite the next generation of innovation,” US Secretary of Commerce Gina Raimondo said in March.

The CHIPS Act has allocated $39 billion in direct government funding to bolster domestic manufacturing, with Intel receiving the largest individual award. Other recipients of CHIPS Act funding include Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung, both of which are also expanding their US operations.

Intel’s ambitious plans and strategic challenges

While the deal offers a lifeline, Intel’s recent struggles have drawn scrutiny. Despite its ambitious plans, Intel has yet to fully capitalize on its investments. The company’s heavy spending on manufacturing has not been matched by sufficient revenue growth, particularly in its PC and server chip businesses. This has led to speculation that Intel could potentially sell parts of its business, including its manufacturing arm.

Rival chipmaker Qualcomm has explored buying a stake in Intel, while private equity firm Apollo Global Management has reportedly shown interest in a $5 billion investment. These overtures have raised concerns over potential antitrust issues, given that both Qualcomm and Intel operate in a highly consolidated industry.

The ongoing funding negotiations between Intel and the US government could be disrupted by any significant corporate restructuring or takeover. The CHIPS Act’s primary goal is to ensure that Intel remains a cornerstone of US semiconductor manufacturing, and the government’s backing is seen as a vote of confidence in Intel’s long-term strategy.

Therefore, it appears that it is in the US government’s best interest to support Intel through any financial difficulties to ensure continued investment in domestic semiconductor production, pointed out Jain.

“Even if Intel undergoes restructuring or is acquired, it is likely that only US-based firms will be considered as potential acquirers to safeguard national interests.”