Intel’s CHIPS Act grant reduced as production delays and losses mount

The US government has scaled back Intel’s preliminary CHIPS Act grant from $8.5 billion to under $8 billion, reflecting concerns over the company’s delayed investments and financial woes, The New York Times reported. The funding was part of the government’s effort to boost domestic semiconductor manufacturing amid growing global competition.

Intel, originally seen as the largest beneficiary of the CHIPS Act, has struggled to meet expectations following its biggest quarterly loss in its 56-year history. The cut coincides with a $3 billion military contract offered to Intel to produce chips for the Department of Defense, the report said citing sources who did not wish to be identified.

In March 2024, the Biden administration and Intel signed a preliminary memorandum of terms (PMT) for an $8.5 billion funding package. This support was part of Intel’s broader plan to invest over $100 billion in expanding its US manufacturing operations, including the construction of new chip facilities in Arizona, Ohio, Oregon, and New Mexico.

The agreement also included up to $11 billion in additional loans from the US government, aimed at strengthening Intel’s position as a key player in the evolving AI-driven semiconductor landscape.

The decision to reduce the grant underscores the challenges Intel faces as it attempts to reclaim technological leadership while fulfilling the US administration’s vision of revitalizing domestic chip manufacturing.

However, there is no clarity on the other terms and conditions of the reduced grant package.

Investment delays and strategic setbacks

The funding reduction comes as Intel pushes back the timeline for completing its Ohio chip manufacturing project from 2025 to the end of the decade. The delay, coupled with persistent challenges in matching the technological advancements of rivals like Taiwan Semiconductor Manufacturing Company (TSMC), has dampened confidence in the company’s ability to deliver on its commitments.

“The delay in Intel’s investment is especially concerning given the current surge in demand for chips, driven by the rise of AI,”  said Rachita Rao, senior analyst at Everest Group. “With AI transforming the industry, the existing IT infrastructure is becoming insufficient to handle its processing requirements.”

Intel’s difficulties come as the Biden administration seeks to reduce US reliance on Asian supply chains through the CHIPS Act, a $39 billion initiative aimed at boosting domestic chip production. In March, President Joe Biden highlighted Intel’s role in transforming the semiconductor industry during a high-profile visit to Arizona.

However, Intel’s setbacks now present significant hurdles to achieving that vision, the report noted.

Oversight and milestones

Commerce Department officials, tasked with ensuring accountability for CHIPS Act funding, have set stringent performance benchmarks, such as building plants, producing chips, and securing customer commitments for domestically made products.

Intel’s struggles to meet these goals reportedly complicated its negotiations for the final grant terms, according to the report.

Meanwhile, TSMC has secured a $6.6 billion grant under the program while committing over $65 billion of its own funds to US factory construction.

“Additionally, Intel is pursuing riskier strategies at a time when TSMC is focusing on a low-risk, high-production model that appears to be yielding strong results,” Rao noted. “Given Intel’s inability to effectively compete in the current market, the reduction in funding seems justified to some extent.”

This, certainly, is not a piece of good news for Intel which has been grappling with significant financial challenges at the moment. The company reported an 85% year-on-year decline in profits and announced plans to cut 15,000 jobs recently. Additionally, the financial downturn has prompted Intel to suspend dividend payments.

The path ahead for US chip manufacturing

The Biden administration viewed the funding as a strategic initiative to lessen reliance on foreign semiconductor supply chains. The US has highlighted the program’s success in driving factory construction, pointing out that the country will soon host facilities from all five of the world’s leading chipmakers.

“Intel is struggling to keep pace with its competitors, particularly TSMC, which dominates the market with its competitive pricing and significant market share,” Rao said.

Intel’s success is vital not just for the company, but for the broader US semiconductor ecosystem. As AI is poised to drive future demand for advanced chips, Intel’s manufacturing capabilities and technological innovations will be crucial in ensuring the US remains competitive in the global market.

However, the reduction in Intel’s grant underscores the challenges of balancing federal investments with corporate accountability. A query to Intel remains unanswered.