Intel's agreement with Trump incorporates a fine provision forbidding the company from transferring its fabrication plants

In a significant development, tech giant Intel is expected to announce external customers for its foundry business next year, subject to real commitments and signed agreements. This announcement comes after the company received a $5.7 billion investment from the US government as part of the CHIPS Act, which is now on Intel's balance sheet.

The agreement between Intel and the US government includes a clause that allows the government to acquire an additional 5% stake in Intel if the company ceases to have a controlling share in its foundry business. This clause also includes a five-year warrant for about 5% of the company's shares.

The government's stake in Intel was acquired in exchange for the $5.7 billion in outstanding grants awarded to Intel under the CHIPS Act. The agreement is designed to deter Intel from selling or spinning off its foundry division.

Despite the calls for Intel to spin off its foundry business due to significant losses in 2024, the company is making strides in improving its manufacturing processes. Intel's 18A manufacturing process is in a good place with steady incremental improvements on yields. The company's Panther Lake CPUs using the 18A node are still on track, with the first SKU due out by the end of this year and more SKUs and volume ramping up in 2026.

Intel's 14A manufacturing process, built as a foundry node, is prepared for external foundry customers. However, if Intel does not win a big customer next year, it still has opportunities for 14A in 2027. If Intel does win customers for its 14A process in 2027, it could still have a good business on 14A.

It is worth noting that Intel tracks its pipeline of potential customers internally, but has not declared anything until a customer is signed. The company disclosed earlier this year at the JP Morgan technology conference that it needs external chip customers to make the 14A process node profitable.

The US government's stake in Intel was seen by the company as an opportunity to secure additional funds for its balance sheet. If Intel maintains a majority share of its foundry business, the warrant will not trigger in the five-year period.

In conclusion, Intel's foundry business is poised for potential growth with the expected announcement of external customers next year. The company's focus on improving its manufacturing processes and securing external customers bodes well for the future of its foundry business. The government's investment in Intel under the CHIPS Act is a testament to the importance of domestic semiconductor manufacturing and the potential for Intel's foundry business to play a significant role in this sector.

Intel's agreement with Trump incorporates a fine provision forbidding the company from transferring its fabrication plants