Intel has received $5.7 billion in cash as part of a deal with the US government that gives the federal administration a 10% stake in its strategic contract manufacturing (foundry) business. This is a key part of a rescue plan to restore the company’s leadership in semiconductor manufacturing. Despite the massive cash injection, the future of this branch of Intel’s business is still in question and is dependent on winning a key customer for a new technology.
The deal, which according to the White House is still being finalised by the Department of Commerce, is designed to secure US interests in the strategic chip sector. In addition to the 10% stake, the deal includes an additional condition: the government can take another 5% if Intel’s share of the foundry business falls below 51%. However, the company’s CFO, David Zinsner, reassures that such a scenario is unlikely and that the company intends to maintain full control.
The government investment is part of a wider restructuring effort. Earlier, Intel raised $2 billion from SoftBank and announced job cuts of up to 75,000 people. The company is looking to formally separate its manufacturing and design operations, following the example of market leaders such as TSMC, which produce chips for fabless design companies such as Nvidia and AMD.
Key to the success of the overall strategy is the future of the next-generation manufacturing process, known as 14A. Intel executives openly admit that the success of the foundry business depends on securing a major external customer for the technology. The investment in the development of the 14A process is too expensive to justify for Intel’s internal use alone – it would not deliver the expected return to shareholders.
Although the company is downplaying the risks, the time to find a strategic partner is shrinking. The coming year will be critical. While billions of dollars from the government give Intel a much-needed breather, the real test for its ambitions will be the market and convincing customers of the scale to bear the huge cost of innovation.
