On August 1, 2024, Intel announced its financial results for the second quarter of 2024. The results were not encouraging: the company’s stock price fell by more than 25% after it announced an aggressive cost-cutting plan, including layoffs affecting 15% of its total workforce.
The cost-cutting plan came as a surprise to many, as evidenced by the sharp decline in Intel’s stock price. The company has had no shortage of bad news in recent years, but hopes of investment and incentives from the CHIPS Science Act, aimed at stimulating domestic semiconductor manufacturing, were a source of hope. As Intel continues to struggle, the question arises: does the U.S. government need to do more?
“I don’t think we can lose Intel. That would be going too far,” said Rob Atkinson, president of the Information Technology and Innovation Foundation, a technology think tank. “That raises the question of what happens if Intel says, ‘We need a cash infusion.’ I think the U.S. government needs to take that seriously.”
$8.5 billion is a lot of money. Will it be enough?
The US CHIPS and Science Act is a law passed on August 9, 2022, which aims to stimulate domestic production of semiconductors. The law did not name any recipients, instead authorizing funds to be allocated later. This began earlier this year, and on March 20, 2024, the US Department of Commerce and Intel reached a “tentative memorandum of understanding,” which includes $8.5 billion in direct funds and $11 billion in loans. Intel also plans to apply for a 25 percent tax credit for investments in semiconductor manufacturing facilities that will be operational between 2023 and 2026.
That seems like a lot of money, but Intel’s stock price has fallen by half since the announcement, in part because building new cutting-edge semiconductor factories is so expensive.
“Intel is the only U.S. company that is positioned to develop the technology to win the competition.” —Mike Demler, Semiconductor Analyst
“I’m not sure Intel is going to make a lot of money,” Atkinson said. “This is really a subsidy to build a factory in a high-cost country.” He said any semiconductor factory is expensive to build, and building one in the U.S. is even more expensive. So he thinks the CHIPS Act funding is unlikely to boost Intel’s bottom line.
He’s not alone in his views. The high costs of cutting-edge factories have been repeatedly noted in multiple reports. A December 2023 report from International Business Strategies estimated that global investments in TSMC’s N2 (2-nanometer) process, which it plans to begin mass production in 2025, could approach $28 billion. Another report on two Samsung factories planned for construction in Texas estimated costs at up to $44 billion.
As these investments show, companies based outside the US are eager to jump at the incentives to build factories in the US. But Intel stands out from its peers in one important way: It’s the only US company with a cutting-edge semiconductor factory. Samsung and TSMC received less funding under the CHIPS Act — $6.4 billion and $6.6 billion, respectively — and received smaller loan amounts.
Without Intel, “the factories that TSMC and Samsung are building will come under more (U.S.) control,” said Mike Demler, a semiconductor analyst. Such a step could take the form of foreign companies selling majority ownership of domestic factories, he said. “That’s not going to happen.”
Atkinson said the CHIPS Act is just a start, but the U.S. will likely need additional funding, assistance or incentives if it wants to target competitive, cutting-edge semiconductor fabs owned by U.S. companies. “It’s pretty good to hit second in the first inning,” he said. “But the problem is, everyone in Washington thinks that’s it.”
His think tank, ITIF, recently released a report on China’s semiconductor innovation that makes several recommendations to U.S. lawmakers, including extending a 25% tax credit for investments in semiconductor production until at least 2030 (it currently expires on Jan. 1, 2027).
The Future of Intel’s Foundries
Grim second-quarter financial results and planned layoffs have cast a bleak light on Intel’s future, with some speculating that a competitor such as Broadcom may try to acquire the company in the coming years. But despite the recent bad news, Demler expressed optimism about the technology behind Intel’s foundry business.
“Intel is the only U.S. company that is in a position to develop the technology to compete. In fact, in process technology, Intel has been the innovator,” Demler said, pointing to process advances such as FinFET, a fin-type transistor that Intel first began producing in 2011, and more recently Foveros, an advanced chip packaging technique that allows for vertical stacking of chips.
The future of Intel’s foundries is heavily bet on the company’s next-generation, most advanced semiconductor manufacturing process, Intel 18A. This “1.8-nanometer” manufacturing process will combine several Intel innovations, including 3D hybrid bonding, nanosheet transistors, and backside power delivery. Demler said that if all goes according to plan, Intel’s 18A will directly compete with or potentially even surpass TSMC’s upcoming 2N process technology.
But while the manufacturing success is a positive step, it won’t solve all of Intel’s problems. In addition to the high costs of investing in new factories, Intel will have to navigate the tricky prospect of attracting customers to its foundry business while continuing to design CPUs and other chips. “I don’t know if the foundry model will work for Intel, because they’re competing with customers,” Atkinson says.
Intel CEO Pat Gelsinger anticipated this problem and announced a reorganization in February 2024, splitting the company into Intel Foundry Services and Intel Products. It remains to be seen whether this separation will ease customer fears.
For now, the fate of Intel’s foundries, and therefore domestic chip manufacturing in the United States, remains unclear, but all eyes are on Intel’s 18A, which is expected to begin production in 2025. If 18A is successful, it could put Intel back on the cutting edge. But if it fails, efforts to bolster U.S. chip manufacturing could face serious problems.
“I think we’ll see results next year,” Demler said.
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