[WASHINGTON] A US government plan to take a stake in Intel would give the ailing chipmaker a powerful backer, even if a bigger challenge still lies ahead: finding enough paying customers.
Wall Street analysts do not expect the money alone to turn around Intel’s business, which has suffered from years of declining sales and the loss of market share. But there is a possibility that pressure from President Donald Trump will help the chipmaker line up more clients for its production arm – potentially justifying the cost of expanding domestic manufacturing.
If the US ends up owning part of Intel, “Trump kind of becomes your salesman,” said Dan Morgan, a senior portfolio manager at Synovus Trust who has covered the company since the 1990s.
The president has this year secured trillions of US dollars’ worth of pledges to invest in the US – even if some of those commitments are repackaged versions of existing plans. That includes a vow by Apple to spend US$600 billion on a domestic expansion. Taiwan Semiconductor Manufacturing Co (TSMC), meanwhile, has pledged US$165 billion as part of a factory buildout in Arizona.
This time around, the administration will need to pull off something with even longer odds: convincing sceptical prospective clients to use Intel for their manufacturing needs. The company has been trying to compete with TSMC in the so-called foundry business – manufacturing chips based on the designs of customers – but it has struggled to show it can match the industry leader’s capabilities.
“Beside money, Intel needs customers,” Bernstein analyst Stacy Rasgon said in a note to clients. “Is it conceivable that as part of something like this the administration might ‘encourage’ customers to use Intel’s capacity (either directly, or indirectly through tariff policy or other regulation)? We don’t know.”
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SoftBank Group this week agreed to buy US$2 billion in Intel shares, raising the possibility that the Japanese conglomerate could use the company for chipmaking. Founder Masayoshi Son, who has forged a close relationship with Trump, has ambitions to develop AI chips that would compete with Nvidia.
Investors cheered the idea, sending Intel shares up 7 per cent on Tuesday (Aug 19). The stock had rallied 23 per cent the previous week, when Bloomberg News first reported that the government was discussing the plan.
US Commerce Secretary Howard Lutnick confirmed this week that the government is discussing a plan to own part of Intel, casting the idea as a bid to convert Chips and Science Act grants into equity. The company had been poised to get about US$11 billion from that programme – initiated by a 2022 law signed by President Joe Biden – and the investment is expected to be roughly that same amount, people familiar with the deliberations have said.
“We need to make our own chips here,” Lutnick said. “We cannot rely on Taiwan.”
Intel, based in Santa Clara, California, declined to comment.
It was a striking turnabout for Intel chief executive officer Tan Lip-Bu, whom Trump had criticised earlier this month. The US president had urged the executive to resign over his past ties to China, but Trump changed his stance after meeting Tan at the White House.
It’s an optimistic moment for a company plagued by upheaval and decline in recent years. Previous CEO Pat Gelsinger had bet that a factory expansion plan – centreed on an ambitious new facility in Ohio – would turn around Intel’s fortunes.
The aim was to transform Intel into a chip foundry and make semiconductors for outside clients, a growing business that turned TSMC into a trillion-US dollar company. The Chips Act money was meant to help make that vision come true. Biden and Gelsinger even held a groundbreaking ceremony for the Ohio site in 2022, promising 20,000 construction jobs and a fresh start for the domestic chip industry.
But the economics of the plant don’t work without big outside customers – especially because it’s meant to feature cutting-edge technology that will be costly to adopt. Intel has repeatedly delayed the project, which isn’t currently slated to be ready until the 2030s.
Jay Goldberg, an analyst at Seaport Research Partners, estimates that it would take about US$20 billion for Intel to get its next-generation manufacturing technology online.
Moreover, the government’s cash-for-equity deal isn’t necessarily a better arrangement than the original Chips Act grants, Rasgon said.
“Funding a buildout with no customers probably won’t end well for shareholders, of whom the US government would be the largest under this situation,” he said.
It also doesn’t change Intel’s standing in the technology industry. It has fallen behind in producing the kinds of chips most prized for AI tasks – an area now dominated by Nvidia.
So-called hyperscalers – the largest data centre operators, like Alphabet’s Google, which are now committing upwards of US$80 billion per year to buying new hardware – aren’t going to settle for lesser chips because the government tells them to, Cowen analyst Joshua Buchalter said. It’s not clear how the US investment fixes a problem that stems from a lack of competitiveness, he said.
“You can’t force hyperscalers to use less performant processors or else you’re inhibiting their competitiveness globally,” Buchalter said.
TSMC is the go-to chip foundry for much of the tech industry, including Apple, Nvidia and Advanced Micro Devices Inc.
Intel, though, has yet to prove it can keep pace with global chip designers and manufacturers again – let alone act as the linchpin for a revival of domestic production.
“Intel still has to deliver,” Morgan said. “Will this stake really make a whole lot of difference?” BLOOMBERG
