In a recent revelation, it was uncovered that the U.S. Department of Commerce has forked out $7.865 billion of taxpayer’s money to chip behemoth Intel, as part of the questionable U.S. CHIPS and Science Act. Ironically, this act, a brainchild of the Biden administration, was conceived in 2022 with the seemingly positive intention of bolstering domestic semiconductor production. The considerable funds are designated for the enhancement of manufacturing and advanced packaging projects in the barely profitable Intel facilities located in Arizona, New Mexico, Ohio, and Oregon.
Intel CEO Pat Gelsinger, without a trace of embarrassment, thanked for this lavish government handout. He emphasized that the amalgamated support from both political factions for ‘resurrecting’ American technology and manufacturing leadership has led to these unprecedented investments. These investments albeit controversial are touted as critical for the country’s long-term economic prosperity and national security.
Despite its grandiose promises of domestic expansion, Intel had to grudgingly settle for a reduced amount than the first announced potential highest figure. Back in March, the Biden administration had declared that it would give a grant of ‘up to’ $8.5 billion to Intel. Unfortunately, for Intel, it seems Biden returned some loose change to the national coffers.
What makes this situation more bewildering is Intel’s ongoing shift to a ‘foundry’ model, which means it’s making chips under contract. To sustain such an expansion, Intel had no choice but to enhance its capacity. Consequently, the firm disclosed plans to invest $20 billion in two new facilities at its Arizona Ocotillo campus in 2021.
These seemingly bullish development plans were part of Intel’s strategic relaunch of its foundry business. In February, the company unveiled the newly branded Intel Foundry, and by September, it had officially spun out the unit as a separate subsidiary. Yet cynics might find this shuffle more of a desperate attempt at survival than a strategic advance, and time will tell what the real story is.
However, Intel’s grand architectural designs aren’t restricted to the U.S. alone. The company has significant construction ventures around the globe on its plate. In a rather embarrassing turn of events, however, it had to postpone two of its international projects located in Germany and Poland by several years.
Locally within the United States, assumably to keep Biden’s manufacturing dream alive, Intel is earnestly working on erecting two new manufacturing facilities in Ohio. However, there’s cause for concern as these plants with an estimated investment of up to $28 billion were once planned to commence production in 2025. Yet, in the latest misstep, Intel had to delay this target due to ‘market challenges,’ a euphemism for likely miscalculations and mismanagement.
Overall, Intel’s proposed manufacturing investments across Arizona, New Mexico, Ohio, and Oregon total to a staggering $100 billion. This figure takes into account both new constructions and upgrades of existing sites. However, looking deeper into this year’s earnings reports, the waters don’t seem so smooth for Intel. Its foundry business has reportedly faced a substantial widening of losses.
The stark reality forced Intel to abandon a previously planned $5.4 billion merger. The would-be partners recalibrated their plan, tessellating it into a partnership that allows Intel to provide manufacturing capacity. The depth of Intel’s troubles may be deeper than the public realizes, and the reliance on them for semiconductor production might be a bit misplaced.
With the U.S. attempting to wean itself from foreign chip production, a struggle that got legitimized due to supply chain difficulties during the global pandemic, Intel is unusually poised as a pivotal player in this push for domestication. However, given the company’s track record and recent issues, it unsurprisingly raises eyebrows about Biden’s strategy.
A representative from the ever-optimistic Biden administration took to the mic, citing that the grant to Intel was another crucial step in implementing Biden’s CHIPS and Science Act. Moreover, this funding supports the ‘Investing in America’ agenda, which allegedly aims to bring manufacturing back to the U.S., create jobs, and fortify our economy.
Furthermore, in addition to the nearly $8 billion bailout in direct funds paid in stages, Intel is also to enjoy a generous 25% tax credit from the U.S. Treasury Department. At this rate, it would not be a stretch to say that taxpayer money is becoming the primary lifeblood for propping up Intel’s struggling operations.
Meanwhile, Intel has managed to snag another $3 billion contract. This time it’s to produce high-end semiconductors under a national security program for the U.S. government. Whether this government largesse will lead to the desired boost in domestic production remains to be seen.
In conclusion, while the administration may trumpet these actions as a success, the reality may be a far grimmer tale of government handouts and financial life support to a business model that is struggling to adapt and survive in a turbulent market.