Last week, Intel Corporation finalized a landmark agreement with the United States federal government. Under this agreement, the federally-owned corporation would gain a 10 percent ownership interest in the company. This historic agreement, including $5.7 billion for transit, is a significant victory in this movement. It’s paid for with untapped CHIPS Act grants, a program that President Joe Biden launched in 2022 to boost domestic semiconductor production. As part of this arrangement, Intel will issue shares to the government at a discount relative to current market prices, raising concerns about dilution for existing stockholders.
Intel’s fiscal future rests heavily on international markets. Indeed, 76 percent of its revenue for the fiscal year ending December 2024 is derived from sales beyond U.S. borders. Importantly, 29 percent of those sales came from China. Analysts and industry experts are sounding the alarm. They caution that the new government equity stake may limit Intel’s access to future grants, which are critical to the company’s future revenue stream.
So indeed, Intel is at a deep economic crossroads at the moment. They attributed that partly to their 3 percent drop in chip sales for Q2 year-on-year. Customers have shown reluctance to buy Intel products under these economic circumstances, adding another layer of difficulty to the company’s future.
Intel is reportedly set to finalize the agreement with the US federal government as soon as Tuesday. Donald Trump has already endorsed the deal publicly, arguing that it will generate 100,000 more jobs and kick-start economic growth.
“I WILL MAKE DEALS LIKE THAT FOR OUR COUNTRY ALL DAY LONG” – Donald Trump
Kevin Hassett, an economist and former Trump advisor, said that
“I think this is a very, very special circumstance because of the massive amount of CHIPS Act spending that was coming Intel’s way.”
Hassett suggested that the US government take equity stakes in other sectors. Specifically, he noted the fast-growing artificial intelligence and semiconductor sectors as areas where they might focus, for example.
“I’m sure that at some point, there’ll be more transactions, if not in this industry, in other industries” – Kevin Hassett
Even with all of that shiny new government investment, doubts remain about how it will affect Intel’s long-term operational strategy. The company’s announced plans to eliminate some 25,000 employees by the end of 2025. This announcement continues its trend of tailor making restrictions, as the company goes through its restructuring process. This move highlights the broader pressures on the chipmaker as it navigates volatile demand and a more competitive environment.
So far, semiconductors have been exempt from those tariffs, which should offer some comfort while Intel continues to chart a calm course through these stormy seas. As this battle continues to develop, the full effects of this temporary government investment are yet unknown.
