It’s no overstatement to say that US chipmaker Intel is the strategic “proof of concept” for American industrial policy advocates. In the name of national security, economic resilience, and high-end manufacturing jobs, the 2022 Chips and Science Act gave the once-dominant company $8.5 billion to help it build new fabs in Arizona and Ohio.

It’s a turnaround bet for Washington. Intel faces a trio of critical challenges, as recently outlined in The Wall Street Journal: First, the company is grappling with declining sales across its key markets. Second, the costs associated with its ambitious manufacturing turnaround plan have ballooned, straining financial resources. Third, Intel has implemented severe cash conservation measures: a 15 percent workforce reduction, significant cuts to capital expenditures, and suspension of its 30-year dividend tradition.

Then there’s this from a new Financial Times piece, giving more color on the company’s woes: CEO Pat Gelsinger received a direct mandate from the board in spring 2023 to prioritize AI strategy, fearing the company would miss out on a multibillion-dollar opportunity. In response, Gelsinger established an AI Acceleration office, but the company still lags far behind competitors like Nvidia and AMD in AI chip sales for data centers, according to the Financial Times. Then there’s this: Amid executive departures and layoffs, Intel’s market value has plummeted by $70 billion, in stark contrast to rival Nvidia’s $1.4 trillion gain.

So with all that context floating about, I made sure to ask Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology and a nonresident senior fellow here at AEI, about Intel in our recent podcast chat: 

Intel, a key U.S. chip manufacturer, faces serious challenges. Recent earnings reports have raised doubts about its viability. Given Intel’s importance to domestic semiconductor production, would the government consider a bailout similar to the auto industry’s during the financial crisis? What’s your stance on Intel’s situation and potential government intervention?

This creates a real dilemma for the U.S. The U.S. would love it to be the case that the world’s leading chipmaker is a U.S. firm, but if you look at who’s getting support from the U.S. government, it’s a mix of TSMC, and Samsung, and Intel, precisely because I think the U.S. didn’t want to bet on only a single horse if that horse looks like it might not win the race. I think that’s a reasonable strategy: Diversify your bets. But as you say, Intel faces ongoing challenges, and I think we’re going to see over the next couple of years whether it needs to take further changes to its business model to stay in business. The U.S. tech sector, I think, is perfectly comfortable not having U.S.-owned firms in the industry. If it’s only Samsung and TSMC, I don’t think US tech companies would see that as being problematic. But I think a lot will depend on how much these firms continue to invest in the U.S., or at least outside of their home markets, to provide the sort of geographic diversification that the US government is pushing for.

Is maintaining an American presence in cutting-edge chip manufacturing politically crucial, even if Silicon Valley is indifferent? Given the strategic importance of semiconductors, should the U.S. consider drastic measures like nationalization or bailouts to ensure a viable domestic manufacturer? This echoes past interventions in the auto industry, arguably less critical than chip production in today’s technology-driven world.

The most important thing is that technology companies, people developing AI systems, get access to the best chips, and so we don’t want to be in a situation in which we’re supporting a second-best player solely because it’s an American firm. If you look at the auto bailouts, I think that there’s a lot of reasons why that is not a comparable situation to where we are today. The automakers were essentially viable firms that just ran into a major short-term financial problem during the 2008 crisis, but they knew how to produce cars, they knew how to sell cars. If Intel were to face more serious problems than it currently does, the question would be, can it get its manufacturing on track and keep up with TSMC? There would be a question of viability, and so simply giving the company five billion more dollars I think is not going to really resolve the challenges that they face. The challenges are in manufacturing technology, the challenges are in designing chips, and they’ve got to do both of those, it’s not fundamentally a financial problem.

You can hear people in Washington talk about, should we mandate that U.S. firms buy chips from US companies? And I think that would be a dangerous road to go down, in part because it would mean mandating that the most successful tech companies in the U.S. don’t get to choose who they buy their chips from, which means that they’re not able to buy from the best technology providers, and so I would be very cautious about going down that road, given the implications it would have for the competitiveness of the rest of the US tech sector.

Like Miller, I will be closely watching Intel’s progress—and how supporters of government assistance react to the company’s next ups and downs.

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