US microchip giant Intel faces what’s been characterized as the most difficult moment in its 56-year history, hiring banksters to advise the company on whether to trim, slash or sell off its manufacturing business. That’s bad news for Washington, which greenlit $280 billion in funding in 2022 toward boosting domestic semiconductor manufacturing.
Intel’s stock has had a rough year-to-date, plummeting nearly 60% since January and falling off a cliff in early August as investors led by billionaire Warren Buffett began a massive selloff which led leading tech stocks to shed nearly $3 trillion in value amid a perfect storm of recession fears, concerns over rising AI-related capital expenditure, and inflation.
The shock stock drop shed more light on the difficult situation at Intel, with a flurry of reports beginning late last week citing informed sources revealing that the company is in the “most difficult period in its 56-year history,” looking for strategic advice from the likes of Morgan Stanley and Goldman Sachs, and considering selling off its chip manufacturing capacity.
The news carries grave significance for Washington, with Axiospointing out in a report last Friday that Intel isn’t just one of America’s oldest US chipmakers, but “a key national security asset,” signaling the US’s ability (or as it happens, inability) to compete with Taiwan, South Korea, China and other chip-making power players in an increasingly demanding world market for microchips.
All eyes are now on Intel’s mid-September board of directors meeting, at which company CEO Pat Gelsinger is expected to present the company’s recovery plan, from cost cuts achieved by shedding “unnecessary businesses,” possibly including US-based programmable chip manufacturing, and even the potential sale of its foundry business to a foreign buyer like TSMC.
Intel currently has more than two dozen fab and post-fab sites, most of them in Oregon, Arizona, California, New Mexico, Colorado and Ohio, but also Ireland and Israel. The potential slash in investment threatens to jeopardize the company’s ambitious expansion plans, both domestically and in Germany and Poland, with capital expenditures expected to drop by $10 billion, to $21.5 billion, in 2025. Among the casualties is a reported move to freeze construction of a $32.8 billion factory complex in Magdeburg, Germany.
Intel’s troubles are also bad news for the Biden administration specifically, which pumped $8.5 billion into the company’s coffers in March from the 2022 $280 billion CHIPS & Science Act, which includes $39 billion in subsidies for US chip manufacturing, $13 billion for semiconductor research and workforce training, and major tax incentives. Intel also enjoys up to $11 billion in Chips Act loans for modernization and new production.
The current administration has made subsidies to microchip manufacturing a key plank of its economic agenda. In addition to a broad array of civilian uses, from computers to vehicles, companies like Intel produce chips for use in military and space applications.
The company’s multi-year $100 billion+ US expansion plans fell to the wayside after its stagnant second-quarter earnings ($12.8 billion), sparking massive layoffs of over 15% of its workforce in August. The same month, veteran exec Lip-Bu Tan resigned from Intel’s board, reportedly over differences about the future of the company, and its failure to listen to proposals to make Intel’s contract manufacturing more customer-centric.
“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” Intel chief Pat Gelsinger wrote in a memo in early August while announcing the cuts and firings.
A pioneer in microchip manufacturing and the developer of the Intel 4004 – the world’s first commercial microprocessor, in the 1970s, Intel produced the most popular chip of the 80s – the Intel 8088, which ended up powering the IBM PC. Fast forward to the 1990s, and Intel’s engineers developed the revolutionary 32 bit Pentium x86 processors – which were heavily improved upon by former Soviet supercomputer designer Vladimir Pentkovski. In the late 2008, Intel introduced the Intel Core lineup of multicore processers, assuring it superiority over competitors for over a decade before being surpassed by AMD in 2022. A few short years on, Intel has dropped out of the top ten largest global microchip manufacturers entirely by market capitalization.
Analyses by the New York Fed and the Center for Strategic and International Studies confirm that US semiconductor companies are losing tens of billions of dollars per year in sales. In an 18-month period immediately following strict sanctions against US chip exports to China, US companies lost an average of $770 million in market capitalization, with $130 billion in lost market cap industry wide.
In company-specific examples, Micron has lost half of its revenues as a result of China export restrictions. In 2024 alone, Qualcomm will forego $10 billion in lost sales of 7-nanometer chips which are now manufactured by SMIC, a Chinese semiconductor firm.
The United States now faces strong challenges from companies in allied countries, who are resisting calls to further decouple from China’s semiconductor market, the world’s largest.
Commerce Department Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People’s Republic of China (PRC) https://www.bis.doc.gov/index.php/doc…
US calls for Netherlands, Germany, South Korea, Japan to tighten chip curbs on China, drawing resistance from allies https://www.scmp.com/tech/tech-war/ar…
The US staked a claim on half the world, as Senate Armed Services Committee chair Jim Inhofe said Washington might have to intervene in Venezuela if Russia dares set up a military base not just there, but “in our hemisphere.”
“I think that it could happen,” Inhofe (R-Oklahoma) told a group of reporters on Tuesday. “You’ve got a guy down there that is killing everybody. You could have him put together a base that Russia would have on our hemisphere. And if those things happen, it may be to the point where we’ll have to intervene with troops and respond.”
Should Russia dare encroach on the US’ neck of the woods, Inhofe said: “we have to take whatever action necessary to stop them from doing that.” … continue
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