Initially, Intel was considered the biggest beneficiary of the Chip Act. However, it has not lived up to expectations after posting the largest quarterly loss in its 56-year history. The New York Times added that, according to anonymous sources, this reduction in subsidies coincided with a $3 billion military contract signed by Intel to supply semiconductors to the U.S. Department of Defense.
In March 2024, the Biden administration and Intel signed a preliminary memorandum of terms (PMT) for a funding package worth $8.5 billion. The support was part of Intel’s plan to invest more than $100 billion to build new semiconductor facilities in Arizona, Ohio, Oregon and New Mexico and expand its manufacturing capabilities in the United States.
PMT also included up to $11 billion in additional loans from the U.S. government. The goal was to strengthen Intel’s position as a key player in the AI-centric semiconductor market.
However, the decision to reduce subsidies demonstrates the difficulty of simultaneously achieving Intel’s efforts to regain technological leadership and the U.S. government’s vision of reviving domestic semiconductor manufacturing. The specific conditions of the reduced support package have not been clearly revealed.
Investment delays and strategic setbacks
The subsidy reduction was decided after Intel postponed the completion schedule of its Ohio semiconductor manufacturing project from 2025 to the 2030s. This situation, combined with the fact that it lags behind the technological advancements of competitors such as TSMC, is reducing confidence in whether Intel can fulfill its promises.
Rachita Rao, senior analyst at Everest Group, said, “Intel’s investment delay is especially worrisome as demand for semiconductors is rapidly increasing due to the spread of AI. “As AI transforms industries, existing IT infrastructure is increasingly unable to keep up with new requirements,” he added.
The Chips Act is a $39 billion initiative to strengthen semiconductor production in the United States. The Biden administration is seeking to reduce America’s dependence on Asian supply chains through the CHIPS Act. Last March, U.S. President Joe Biden emphasized that Intel was playing an important role in changing the semiconductor industry during a visit to Arizona. However, according to reports, several issues facing Intel are acting as significant obstacles to realizing this vision.
The U.S. Department of Commerce, which is responsible for ensuring accountability of Chips Act funds, has set strict performance standards, such as building factories, producing semiconductors and securing customers for domestically produced products. According to reports, Intel’s difficulties in achieving these goals have complicated negotiations over final support terms.
Meanwhile, TSMC secured $6.6 billion in subsidies through this program and invested more than $65 billion of its own funds in building U.S. factories.
“While TSMC is delivering strong results by focusing on a high-throughput model with low risk, Intel is pursuing a riskier strategy,” said Everest Group’s Rao. “In a situation where Intel is currently unable to compete effectively, reducing subsidies seems justified to some extent,” he pointed out.
Of course, the subsidy cut is not good news for Intel, which is currently experiencing serious financial difficulties. Intel recently announced an 85% decline in profits compared to the previous year and plans to cut 15,000 employees. In addition, dividend payments were suspended due to the economic downturn.
Future outlook for U.S. semiconductor manufacturing
The Biden administration views the Chip Act subsidies as a strategic initiative to reduce dependence on foreign semiconductor supply chains. The U.S. government emphasized that the results of this program have accelerated factory construction and will soon host the facilities of all five major semiconductor manufacturers.
“Intel is having a hard time competing with TSMC, which dominates the market with competitive pricing and significant market share,” Everest Group’s Rao said.
Intel’s success is important not only for the company itself but also for the U.S. semiconductor ecosystem. With AI expected to drive future demand for advanced semiconductors, Intel’s manufacturing capabilities and technological innovation are expected to play a key role in helping the United States remain competitive in global markets.
But cutting subsidies to Intel highlights how difficult it is to balance federal investment and corporate responsibility. Intel did not respond to Computerworld’s inquiries regarding this matter.
editori@itworld.co.kr
Source: www.itworld.co.kr
