Policymakers in Washington have grown worried enough about chipmaker
Intel to begin quietly discussing scenarios should it need further
assistance, beyond the billions in government funds the company is
already slated to receive, people familiar with the matter said.
A strong quarterly earnings outlook yesterday bought the company
breathing room with investors, but abstract concerns in Washington have
turned into potential backup options, should Intel’s finances continue
to deteriorate.
Top officials at the Commerce Department, which oversees implementation
of the CHIPS Act funding to reinvigorate American chip production, and
members of Congress including Sen. Mark Warner, one of the law’s
leading champions, have discussed whether the company needs more help,
the people said.
The talks, which the people described as purely precautionary, show
that Intel is seen as too strategically important to be allowed to fall
into serious trouble. The US is seeking a national champion in the
semiconductor space to ensure its own supply chain and as a
counterweight to China, where manufacturing for global chips has moved.
“We have outlined a clear strategy that we are executing with rigor,
and the strong operational performance we delivered in Q3 demonstrates
important progress against our plan,” an Intel spokesperson said in a
statement. “Intel is the only American company that designs and
manufactures leading-edge chips and is playing a critical role to
enable a globally competitive semiconductor ecosystem in the US.”
One option is a merger, led by the private sector but possibly
encouraged by the government, of Intel’s chip-design business with a
rival like AMD or Marvell, the people said. There’s little appetite for
a 2008-style bailout, in which the government took direct stakes in
automakers and banks, because policymakers are worried about losing
money given Intel’s continued sales declines.
Intel is set to be the biggest recipient of government funding under
the CHIPS Act, which aims to help American manufacturers of key tech
components build their products in the US and compete with China. The
company is slated to receive $8.5 billion in grants and $11 billion in
low-interest loans; these funds would not be part of any further
assistance, should Intel need one.
But Intel hasn’t received any of that CHIPS money yet amid doubts about
its prospects. Bloomberg [1]reported that the company has been
reluctant to share certain information sought by US officials tasked
with ensuring that the company has a viable turnaround plan.
Intel suspended its dividend in August to preserve cash and said it
would lay off about 15% of its workforce as part of a $10 billion
cost-cutting effort. It is the second-worst performing stock in the S&P
500 this year, after Walgreens. Credit ratings agencies downgraded the
chipmaker this summer, increasing its borrowing costs.
On Thursday, Intel reported a $16.6 billion net loss largely due to
writedowns and other restructuring charges and updated its planned
layoffs, increasing them by about 10% to 16,500 employees. But it gave
a better-than-expected revenue outlook for the fourth quarter, and
shares rose 6% on Friday morning.
On Intel’s earnings call Thursday, CEO Pat Gelsinger said the company
is on track to begin producing its most advanced chips, known as 18A,
next year.
Intel is different from other US chipmakers like Nvidia and Qualcomm
because it has always built its chips at its own facilities, known as
“fabs,” instead of outsourcing production to Taiwan, Korea and
elsewhere. But Intel made strategic mistakes, causing it to fall behind
rivals. With CHIPS Act funding, the US aimed to encourage Intel to
revitalize its production capabilities.
A successful launch of the 18A generation chip — something many in the
industry doubted the company could pull off — would put Intel back on
par with industry leader TSMC.
Amazon last month made a multi-billion-dollar commitment to buy a new
custom-designed AI chip from Intel that will be built using the 18A
process. And on the earnings call Thursday, Gelsinger said two more
“compute-centric companies” have agreed to use 18A.
“We have confidence in Intel’s overall vision for manufacturing chips
in the United States,” a Commerce Department spokesperson said “We
continue to work closely with the company to finalize their award and
will provide further updates as they become available.”
Warner’s office declined to comment.
Gina Chon contributed to this report
References
1.
https://www.bloomberg.com/news/articles/2024-09-04/intel-s-money-woes-throw-biden-team-s-chip-strategy-into-turmoil
