U.S. Government Awards Intel $5.7 Billion, Potential Roadblock from Trump Concerning Spinoff of Foundry Operations

Intel and the US Government Invest $8.9 Billion to Boost Domestic Chip Manufacturing

In a significant move to strengthen domestic chip manufacturing, Intel and the United States Government have reached an agreement for a $8.9 billion investment. The deal aims to bolster Intel's foundry services, which have been a focus of the company's IDM 2.0 vision.

As part of the agreement, Intel Foundry Services will receive $5.7 billion from the US Government, with the remaining $3.2 billion coming from Intel itself. This investment is a step towards Intel's goal of establishing itself as a world-class foundry, a vision shared by its CEO, Lip-Bu Tan.

However, the road to success is not without challenges. Last year, Intel Foundry Services reported a loss of $13 billion, and it was not expected to break even until 2027. The company has also faced difficulties in making its foundry services profitable, having started producing chips for other companies in 2021.

In light of these challenges, Intel has announced plans to lay off 24,000 employees by 2025, reducing its total employee count to 75,000. The company also plans to step back from several projects and reduce spending.

The structure of the deal indicates that the US Government desires Intel to maintain majority control of Intel Foundry Services. In fact, Intel will hold a 9.9% stake in the company as a result of the deal. However, the government has the possibility to acquire more than 5% of shares in case of loss of controlling majority at Intel Foundry Services.

The deal also includes a five-year warrant that allows the government to obtain an additional 5% of Intel at $20 per share if Intel gives up control of its foundry business. This warrant applies if Intel's ownership falls under 51%.

It's important to note that the exact terms of the deal are still being determined. However, one thing is clear: this investment is a significant step towards Intel's goal of competing with industry giants like TSMC and Samsung, as envisioned by Pat Gelsinger, who was instrumental in Intel's push for third-party chip manufacturing but abruptly left the company last year.

Under the new leadership of Lip-Bu Tan, Intel is working towards restoring its dominance in the chipmaking industry. The company's ambition is to establish Intel Foundry Services as a world-class foundry, contributing to the US Government's push for domestic chip manufacturing.

This investment marks a pivotal moment in the tech industry, demonstrating the commitment of both Intel and the US Government to the future of chipmaking. As the details of the deal unfold, it will be interesting to see how Intel's foundry services evolve and whether they can overcome the challenges they currently face.