Trump Administration Blocks Intel Foundry Sale

Intel's Foundry Business and Government Intervention

The current administration appears determined to exert control over Intel’s strategic choices concerning its underperforming foundry division.

Recent reports from the Financial Times indicate that Intel’s CFO, David Zinsner, revealed further specifics regarding the company’s recent agreement with the U.S. government during a Deutsche Bank conference on Thursday.

Details of the Agreement

This agreement granted the U.S. government a 10% equity stake in Intel. The structure of the deal incorporates penalties should Intel decide to separate its foundry business – the unit responsible for producing custom chips for external clients – in the near future.

The arrangement includes a five-year warrant. This warrant would enable the U.S. government to acquire an additional 5% of Intel at a price of $20 per share, contingent upon Intel holding less than 51% ownership in its foundry business. Mr. Zinsner anticipates this warrant will ultimately lapse.

“The government’s intention was to prevent us from divesting or selling this business,” Zinsner stated, indicating alignment with the administration’s goals.

According to Reuters, Intel received $5.7 billion in cash on Wednesday as a direct result of last week’s agreement. This funding stems from previously allocated, but unpaid, grants under the U.S. CHIPS and Science Act.

Ongoing Discussions

White House Press Secretary Karoline Leavitt communicated to reporters today that the details of the deal are still under finalization.

Intel has refrained from providing additional commentary beyond the statements made by Mr. Zinsner.

Strategic Implications

This deal’s construction underscores the administration’s commitment to bolstering domestic chip manufacturing. This ambition arises as numerous industry participants favor utilizing the offshore manufacturing capabilities of companies like Taiwan Semiconductor Manufacturing Company.

However, the warrant also compels Intel to maintain a business unit that is currently operating at a loss. Intel Foundry reported an operating loss of $3.1 billion during the second quarter, representing a significant challenge for the semiconductor company.

Calls for Separation

Analysts, board members, and investors have consistently advocated for the separation of the struggling foundry unit. A potential spin-off was seriously considered last autumn, but these plans were halted following the unexpected retirement of Pat Gelsinger, the former CEO and architect of Intel Foundry, in December.

The situation highlights the tension between Intel’s business needs and the government’s strategic objectives in the semiconductor industry.