The US Department of Commerce has announced a government subsidy of $7.86 billion to Intel, which is lower than the $8.5 billion subsidy announced in March. This is the largest direct subsidy to promote domestic semiconductor manufacturing plans and will support nearly $90 billion in manufacturing projects in Arizona, New Mexico, Ohio, and Oregon.
Intel can start receiving funding after reaching the project negotiation benchmarks in four states in the United States. A senior government official stated that based on the milestones already achieved, the company will be eligible for at least $1 billion in funding this year. Intel's factory in Ohio has been delayed for several years and is currently not eligible for any federal support, despite receiving $2 billion from the state.
US Secretary of Commerce Gina Raymondo stated that Intel's contract will mean that "chips designed in the United States will be manufactured and packaged for the first time by American workers, in the United States, and by American companies," with its agency responsible for implementing the 2022 Chip Act. This milestone bipartisan bill plans to allocate $39 billion in grants, $75 billion in loans and loan guarantees, and a 25% tax credit to revitalize the US chip manufacturing industry.
Raimondo pointed out that Intel's contract is the sixth finalized contract, and more contracts will be completed in the coming weeks. She added that the final determination of the contract is to protect and safeguard taxpayers' money.
The contract from the US Department of Commerce includes restrictions on stock buybacks within five years and provisions for sharing "meaningful" excess profits.
Intel CEO Pat Kissinger said, "The strong bipartisan support for restoring American leadership in technology and manufacturing is driving historic investments that are crucial for the country's long-term economic growth and national security
The Biden administration is eager to finalize the chip bill agreement
However, Trump criticized the "chip bill" plan as "too bad," and his Republican colleagues threatened to amend or even repeal the bill. The Trump administration may completely change this effort after taking office in January 2025, and this risk has prompted the US Department of Commerce to accelerate its work and seek to complete negotiations with Intel, TSMC, and other companies as soon as possible.
Completing negotiations has always been Intel's top priority, despite being mired in financial difficulties and years of technical mistakes. The company has spent months trying to convince Wall Street and the US government that it can implement a large-scale manufacturing expansion. This is also an important step taken by the Biden administration, which is attempting to shield its industrial policy initiatives from potential changes under the leadership of President elect Donald Trump.
Intel's final funding includes nearly $7.9 billion in commercial manufacturing incentives and $3 billion in military production incentives. The remaining funds include the direct cost of the loan and personnel costs.
Officials in the Biden administration have placed a significant portion of their semiconductor ambitions on Intel, the only advanced processor manufacturer in the United States. The company has committed to investing $100 billion in US factories (equivalent to nearly a quarter of the total private investment stimulated by the Chip Act) and will produce semiconductors for the military. This makes Intel's project crucial for national security and the country's broader goal of occupying 20% of the global market share in cutting-edge logic chips.
But US officials also have to deal with the major business challenges facing Intel, which have become more apparent since the announcement of initial rewards in March this year. Intel's poor financial report in August has raised concerns among investors about the feasibility of CEO Kissinger's turnaround plan. After making a huge investment, Intel's profit margin has shrunk and announced the layoff of 15000 employees.
According to reports, government negotiations have reached a deadlock due to differences between the two sides over how much information Intel must share with federal officials seeking to review its technology roadmap, as well as some clauses that specify what would happen if Intel divests its manufacturing business or is partially or fully acquired.
Reduce subsidies, no loans
Intel is initially expected to receive $8.5 billion in subsidies under the Chip Act and $11 billion in loans. The senior official stated that the funding for the final agreement has been reduced, and Intel has chosen not to accept any loans.
They stated that the funding cuts were not due to Intel facing broader business challenges. On the contrary, this takes into account Intel's separate $3 billion grant to manufacture advanced chips for the military. It is reported that Intel is in negotiations with the US government regarding this project.
The project is called "Secure Enclave" and was originally supposed to receive most of the funding from the Pentagon. But in February of this year, officials from the US Department of Defense withdrew from the deal, and lawmakers subsequently shifted responsibility to the US Department of Commerce. According to reports, officials from the US Department of Commerce have included some of their new obligations in the chip bill funds already reserved for Intel, thereby reducing the total amount of funds Intel ultimately received.
Intel stated that the loan terms were "not as favorable as expected for Intel shareholders and do not align with Intel's long-term growth and market interests." The company said it looks forward to engaging with the new government on the future use of the loan terms.
Intel stated that the company also plans to apply for the US Treasury Department's investment tax credit, which is expected to reach 25% of over $100 billion in eligible investments.
Project delay
Intel's initial proposed award program supported all of its projects in the United States. But the company has since postponed the construction of key locations, which means that about 10% of Intel's planned total capital expenditure will be realized after 2030- the final deadline for obtaining government support.
The construction in Ohio was originally expected to be completed by the end of 2026, but Intel now plans to build its first factory before 2030 and its second factory after 2030. According to government officials and another informed source, this means that Intel's final funding will only support the first factory in Ohio.
Intel's Arizona factory has also been slightly delayed. A senior official from the US Department of Commerce stated that production at the Arizona plant was originally expected to begin at the end of 2024, but has now been postponed to 2025. The company has completed the construction of an advanced packaging factory in New Mexico and invested in a research and development institution in Oregon.
In summary, Intel has spent $30 billion on construction in the United States, and Kissinger has placed his ambitious corporate revival on it.
