why the us government is not the savior intel needs

A Shift in Funding for Intel: Equity for Grants?

The previous administration initiated a remarkable and somewhat perplexing policy shift last week. Plans were revealed to transform funds originally allocated to Intel via grant programs established during the Biden administration into a 10% equity position within the company.

The feasibility of converting these government grants into equity remains questionable, sparking considerable debate. Furthermore, it is not readily apparent how such a maneuver will address Intel’s primary challenge: the uncertain performance of its foundry operations. Even the company itself appears doubtful.

Intel Foundry's Challenges

Intel Foundry, responsible for the production of custom semiconductors for external clients, has yet to yield substantial returns for the company. Reports from Reuters indicate the division has missed out on significant contracts, such as a potential agreement with Sony, and has incurred losses exceeding its revenue.

During the second quarter, Intel Foundry reported an operating loss of $3.1 billion. Consequently, the company has implemented workforce reductions throughout the year, with the foundry business unit experiencing particularly significant cuts.

Leadership Changes and Expert Opinions

Disagreements concerning the revitalization of Intel’s struggling foundry business contributed to the resignation of Lip-Bu Tan from the company’s board in August 2024. Tan had been slated to assume the role of CEO in the spring of 2025.

Kevin Cassidy, managing director at Rosenblatt Securities, expressed skepticism to TechCrunch regarding the potential of this deal to resolve Intel’s difficulties. He argued that the foundry’s issues are not financial, but rather stem from a need to refine its customer engagement strategy.

“A lack of understanding regarding customer service” was cited by Cassidy as a key factor in Intel Foundry’s difficulties securing clients. “Historically, internal manufacturing has been prioritized, with the manufacturing division holding significant influence. Adopting a customer-centric approach proves challenging when a sense of inherent superiority prevails.”

A request for comment directed to Intel went unanswered.

Key Issues Summarized

• The administration proposed converting grants to Intel into a 10% equity stake.
• The viability of this conversion is under scrutiny.
• Intel Foundry is facing significant financial losses and challenges in attracting customers.
• Leadership changes reflect internal disagreements about the foundry’s future.
• Experts suggest a shift in customer service approach is needed, not just financial investment.

The Consequences of Intel's Investment

Intel has recently disclosed potential drawbacks associated with a recent investment through a filing with the Securities and Exchange Commission (SEC) made public on Monday. The company specifically outlined the risks this presents to both its investors and its customer base – stakeholders vital to Intel’s continued success.

A key concern is the dilution of current shareholders and a corresponding reduction in their voting power. While support from the previous administration was anticipated, potentially aiding Intel’s strategic initiatives, actions that negatively impact existing investors may hinder future investment attraction.

Cassidy expressed concern, stating, “As a stockholder, I would be dissatisfied.” He pointed out that Intel issued an additional 430 million shares, diminishing the value of existing holdings, and that this was achieved with a 20% price reduction.

The potential repercussions for Intel’s global operations were also addressed. The company reported that a substantial 76% of its revenue in the most recent fiscal year originated from markets outside of the United States.

Given the present climate of international trade tensions, particularly those led by the U.S., businesses operating outside the country must now consider the implications of collaborating with a company that has received partial ownership from the U.S. government.

Potential Impacts on Global Partnerships

This situation introduces a layer of complexity for international partners. Companies may need to reassess their relationships with Intel in light of the U.S. government’s stake.

The investment raises questions about potential biases or influences stemming from U.S. governmental involvement. This could lead to hesitation among international entities.

Shareholder Concerns and Governance

The issuance of new shares directly affects the ownership structure of Intel. Existing shareholders experience a decrease in their proportional ownership.

Furthermore, the reduction in governance rights could limit the influence of long-term investors on the company’s strategic direction.

• Dilution of Equity: Existing shares represent a smaller percentage of the company.
• Reduced Voting Power: Shareholders have less say in company decisions.
• Potential for Conflict: Investor interests may not always align with government objectives.

Intel’s acknowledgement of these risks demonstrates a degree of transparency. However, the long-term consequences of this investment remain to be seen.

Positive Perspectives on Recent Developments

Despite concerns expressed by some, not all observers view the recent transaction negatively. Cody Acree, a managing director and senior research analyst at Benchmark Company, conveyed to TechCrunch his belief that Intel will not experience a decline in interest from its international clientele.

Acree acknowledged that the agreement isn't without its imperfections, but posited that the government’s demonstrated commitment to Intel’s future could provide a necessary impetus for the chipmaker – even if it represents a modest advancement in a prolonged recovery process.

“For the past decade, Intel has exhibited signs of struggle and may require some form of governmental support; characterizing it as a bailout might be excessive, however, this intervention is perceived as a potential catalyst for revitalizing Intel,” Acree explained. “I do not concur that it constitutes a comprehensive solution, but it is reassuring to witness the government supporting Intel, rather than challenging its leadership as was the case a month prior.”

Andrew Rocco, a stock strategist at Zacks Investment Research, concurred that an agreement with the U.S. government could yield positive outcomes. Prior to the formal announcement of the deal, Rocco suggested it could position Intel for a more prominent role in the administration’s ongoing efforts to bolster domestic AI capabilities, through initiatives involving OpenAI, SoftBank, and Oracle’s Stargate project, as well as the reshoring of semiconductor manufacturing.

“Given the immense scale of the impending market – the data center and chip market – even a modest share could prove successful,” Rocco stated. “Opportunities for growth remain. This development will be beneficial, requiring a long-term perspective of five to ten years.”

However, both analysts cautioned that the deal alone will not ensure Intel’s complete turnaround. A genuine and lasting recovery necessitates internal improvements within the company.

While the Trump administration intends to function as a passive investor, Acree pointed out that this does not preclude its involvement from generating business for Intel. Cassidy added that, ideally, this would not stem from coercion, but it remains a possibility.

Unlike the realm of higher education, corporate America has consistently demonstrated a willingness to align with the Trump administration’s objectives and policies. Since Donald Trump assumed office in January, numerous companies have scaled back their diversity, equity, and inclusion initiatives – even when such actions have proven detrimental to their own interests. A strong emphasis on pro-America messaging has become increasingly prevalent in advertising and corporate communications.

Should the Trump administration encourage American companies to procure Intel’s chips and hardware, minimal persuasion may be required to secure their cooperation.

Acree and Cassidy emphasized that the true measure of success for Intel will not be the deal itself, nor its perceived implications. Instead, it will hinge on Intel’s ability to generate demand for its 14A chipmaking processor. Tan has indicated that the company will not initiate production of the 14A process until substantial customer interest is confirmed.

“There is no certainty that Intel will regain its position at the forefront of the market,” Cassidy observed. “Intel has been experiencing negative cash flow for several years; it is uncertain whether this additional funding will simply prolong the search for a formula to restore its leading-edge status.”