Intel, once sat atop the pile of chip companies, has had a bit of a fall from grace as of late. Instability problems with 13th and 14th Gen chips, plus underperforming CPUs since then, have given an edge to AMD and its excellent gaming CPUs. But the real trouble is how it was recently predicted to have 18 months to 'land a hero customer on 14A' before its chip manufacturing facilities, the foundry business, is in real trouble. Well, in steps the US government. For a price.
Intel has agreed to give a 10% stake to the US government in exchange for $8.9 billion taken from federal grants, as is allowed in the 2022 CHIPS Act. As reported by the Financial Times, this comes with a stipulation. For five years, Intel has to own at least 51% of its foundry business, or the US government can take another 5% of the business at $20 a share.
Intel shares are currently valued at just under $24 a share right now, but it's worth noting that Intel is at a historic low, as far as share value is concerned. The last time it appeared to have dipped this much or below was 2013. A dollar in 2013 gets you just under $1.40 today, so that plummet looks even more stark. Each share was worth as much as $50 back in December 2023, and it briefly hit $70 a share in January 2020.
There are reportedly around 4.3 billion shares in Intel, so 5% of Intel, at $20 a piece, would mean the US could buy that amount for around $4.3 billion should Intel lose control of its foundry business. This is just under half of what the US government is currently paying for 10% of Intel—so roughly a square deal—but Intel's share price could fluctuate over time.
Given the renewed investment and support from the US government, this bid to buy more Intel at that stock price is likely indicative of it thinking Intel's stock will go up in price. According to the Financial Times, Intel CFO David Zinsner said, “I don’t think there’s a high likelihood that we would take our stake below the 50 percent, so ultimately I would expect [the warrant] to expire.”
He also said, “I think from the government’s perspective, they were aligned with that: they didn’t want to see us take the business and spin it off or sell it to somebody.” Effectively, this stipulation seems intended to apply pressure to Intel not to sell off, which aligns with the US's attempts to support industry within the US (and disincentivise relying on industry outside of it).
Losing the foundry to a third party could lead to instability or the gutting of the company for its resources/technology. Intel is a known name in the computing industry, and one that the US government is going to some lengths to prop up, as the Biden administration had already agreed to pump billions in CHIPS Act cash into the company.
These fears aren't unfounded. Just a few weeks ago, ex-Intel CEO Craig Barrett said that current Intel CEO Lip Bu Tan's plans to not invest in 14A until customers sign up are a 'joke'. He said, "Intel is cash poor and can’t afford to invest in the capacity needed in the future to replace TSMC or even a reasonable fraction of TSMC capacity. They probably need a cash infusion of $40B or so to be competitive." Just months prior, spinning off Intel Foundry remained an 'open question,' so some worried, without a cash injection, that Intel would sell off the lot and focus its efforts elsewhere.
Intel has reportedly received $5.1 billion, with the other $3.2 billion said to come with certain milestones. According to Karoline Leavitt, the White House press secretary, “The Intel deal is still being ironed out by the Department of Commerce. The Ts are still being crossed, the Is are still being dotted.”
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