why the us government is taking a stake in intel

The U.S. Pursuit of AI Leadership and Semiconductor Manufacturing

The administration under President Trump has articulated a goal of establishing the United States as the leading global power in artificial intelligence. A key component of this strategy involves revitalizing domestic semiconductor manufacturing.

Efforts to bolster the U.S. semiconductor industry have included the consideration of potential tariffs on chips and the implementation of policies designed to encourage more manufacturing within the country.

A Unique Investment in Intel

In late August, a significant action was taken to further this objective. An existing government grant, originally intended to support domestic semiconductor production, was restructured into a 10% equity position in Intel.

The terms of this agreement stipulate that the U.S. government could acquire further equity in Intel. This would occur if the company’s ownership share of its foundry operations – responsible for producing customized chips for clients internationally – were to fall below 50% over the coming five years.

Intel's Central Role in the Strategy

While Intel is not the sole U.S. semiconductor manufacturer, and many companies produce chips outside of the country, it has become central to the Trump administration’s plans for achieving dominance in AI.

The following exploration will delve into the reasons behind Intel’s prominent position within this strategic initiative.

Understanding the factors that led to this focus on Intel is crucial for grasping the broader implications of the administration’s approach to securing U.S. leadership in the field of artificial intelligence.

The Evolution of Intel Foundry

The story begins in March 2021 when Intel initiated its foundry services, coupled with a $20 billion investment pledge for the construction of two novel chip fabrication facilities in Arizona.

Subsequently, in the following year, the company expressed its intention to procure Tower Semiconductor, a specialist in custom foundry services, in a transaction valued at $5.4 billion.

However, this acquisition faced hurdles from regulatory bodies, ultimately leading to the cancellation of the merger in August 2023.

Following this setback, Intel Foundry encountered difficulties in establishing significant traction and reports surfaced suggesting challenges in securing substantial client engagements.

During 2024, then-CEO Pat Gelsinger revealed Intel’s plans to restructure Intel Foundry as a separate, independent subsidiary.

This announcement followed calls from board members to fully divest the unit, occurring amidst a period of decelerated growth, cost reduction measures, and extensive workforce reductions.

A positive development emerged in November 2024, as Intel secured an agreement with the U.S. government.

This agreement provided $7.86 billion in federal grants, facilitated by the 2022 Chips and Science Act, with the aim of strengthening domestic semiconductor production.

Shortly thereafter, in December 2024, Pat Gelsinger unexpectedly stepped down from his position as CEO.

Key Developments and Challenges

Intel's initial foray into the foundry business involved a substantial financial commitment and ambitious expansion plans.

The proposed acquisition of Tower Semiconductor represented a strategic move to bolster Intel’s capabilities in the custom foundry sector.

Regulatory obstacles ultimately prevented the completion of this acquisition, impacting Intel’s foundry strategy.

The subsequent struggles of Intel Foundry to attract major customers raised concerns about its viability.

The decision to transition Intel Foundry into an independent subsidiary reflected internal pressures and a reassessment of the business unit’s future.

Government funding through the Chips and Science Act offered a significant boost to Intel’s domestic manufacturing efforts.

Pat Gelsinger’s unexpected departure added another layer of complexity to the situation.

Timeline of Events

• March 2021: Intel launches foundry business and announces $20 billion investment in Arizona.
• 2022: Intel announces intent to acquire Tower Semiconductor for $5.4 billion.
• August 2023: Tower Semiconductor acquisition is canceled due to regulatory issues.
• 2024: Intel plans to make Intel Foundry an independent subsidiary.
• November 2024: Intel secures $7.86 billion in federal grants.
• December 2024: Pat Gelsinger retires as CEO.

Lip-Bu Tan’s Re-engagement with Intel

In early March, Intel declared the return of Lip-Bu Tan to the company, reinstating him as CEO. Immediately upon assuming the role, Tan initiated the development of a potential revitalization strategy.

This plan prioritized a renewed focus for the corporation, divestment of non-essential business segments, and a substantial reduction in personnel.

By July, the company communicated a scaling back of certain manufacturing initiatives, notably including the postponement of its $28 billion fabrication facility project in Ohio.

Shortly thereafter, attention from the Trump administration was directed towards Intel.

On August 6th, Senator Tom Cotton, a Republican, submitted a letter to Intel’s board. This communication, as reported by Bloomberg, inquired about Tan’s connections to China.

Specifically, the letter addressed his association with Cadence Design Systems. Bloomberg reported that Cadence had faced accusations of violating U.S. export regulations concerning China, and had provided technology to a Chinese military institution.

Tan had previously led Cadence for over ten years.

The subsequent day, August 7th, saw a demand from Trump for Tan’s “immediate” resignation. The president alleged a “highly conflicted” situation, though no supporting evidence was presented.

During the following week, Tan traveled to Washington, D.C. to engage in discussions with Trump.

The purpose of this meeting was to explore collaborative avenues between the government and Intel, geared towards the administration’s objective of bringing semiconductor manufacturing back to the U.S. Speculation quickly arose regarding a potential equity investment by the U.S. government in Intel.

On August 18th, SoftBank announced a $2 billion investment in Intel.

Four days later, the U.S. government unveiled its agreement with Intel.

This agreement guarantees Intel’s access to previously awarded grant funding. The Trump administration asserts its role will be as a passive investor, aligning its voting rights with Intel’s interests.

However, the actual impact of this arrangement on Intel remains to be seen.

The future course of events is currently uncertain.