Recently, Secretary of Commerce Gina Raimondo proudly announced that the US had achieved a “milestone” in its drive to build secure advanced semiconductor plants within its borders. Specifically, the Department of Commerce has now received commitments from the five leading manufacturers of advanced semiconductor chips to build new facilities (fabs) in the US over the next decade. The manufacturers are Intel, Micron, Samsung, SK Hynix, and Taiwan Semiconductor Manufacturing Company (TSMC). The euphoria, however, was substantially dampened a few days later, when Intel announced that due to financial distress, it planned to lay off 15,000 workers and dramatically cut capital spending. It also suspended dividends for the first time in decades.
The Commerce Department’s CHIPS Act plan. The CHIPS and Science Act appropriated some $39 billion to the Commerce Department to fund a series of advanced semiconductor plants in the US. As noted above, with the new commitment by South Korea’s SK Hynix, the department now has pledges from each of the five of the world’s leading semiconductor manufacturers. These commitments add up to some $30 billion of the $39 billion appropriated in the CHIPS Act, with Commerce promising to begin distributing the funds by the end of the year. The department claims that the CHIPS Act subsidies ultimately will generate an additional $300 billion in US private semiconductor investment.
Intel Struggles to Regain Chip Leadership. Ever since he returned to the company, in 2021, Intel CEO Pat Gelsinger has led a heroic effort to restore the company’s technological leadership in chip design and production after a decade of falling behind national and internal competitors. He launched a bold, high-risk, (potentially) high-reward plan: first, to catch up on cutting-edge chip design and, in addition, to enter the extremely competitive and technologically complex chip-manufacturing sector.
Analysts have given Gelsinger high marks for a technological turnaround, and despite the grim financial news recently, the CEO still insists that its latest advanced chip—derived from new ultra-violet lithography—would be completed in 2025 and reach full production in 2026. Still, Intel largely missed the huge shift in demand for chips to power artificial intelligence projects that has launched Nvidia to new heights. More negatively for Gelsinger, his ambitious, highly expensive plans to compete in the foundry business have been a major drag on the company’s other divisions. While it has secured a few contracts, Intel’s foundry division lags far behind competitors TSMC and Samsung, creating a debilitating drain on the company’s thinly stretched financial resources.
The Future. Intel’s woes have produced much hand-wringing but no consensus on future paths. Some Wall Street investors argue that the company should just scrap the foundry business. Conversely, others argue just the opposite: Intel should focus mainly on the foundry division. At this point, the company’s shares have declined about 68 percent. Despite these travails, thus far Gelsinger has resisted jettisoning either of these major projects.
While no doubt premature, the following headline appeared in the Wall Street Journal last week: “Intel May Be Too Big to Fail.” Intel has already received a commitment from the Commerce Department for an $8.5 billion grant a manufacturing fab and an $11 billion loan commitment. Gelsinger’s dogged persistence and determination may yet fuel Intel through its current reduced state, but it is also likely, as Dan Gallagher argued, that given the centrality of semiconductors to security and competitiveness: “Uncle Sam might be the biggest bull in Intel’s pen for a long while.” More broadly, all of this underscored the point made by my AEI colleague James Pethokoukis: The Chips Act Still Has Its Most Difficult Days Ahead of It.
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