U.S. Government Grants Intel $5.7B, Potential Presidential Intervention Threatens Spinoff of Foundry Division

The US government has agreed to invest $8.9 billion into Intel, securing a 9.9% stake in the company. This move is part of the government's efforts to bolster domestic chip manufacturing.

The exact terms of the deal are still being determined by the Department of Commerce. However, one part of the agreement is a five-year warrant that allows the government to obtain an additional 5% of Intel at $20 per share if Intel gives up control of its foundry business.

The current CEO of Intel, Lip-Bu Tan, discussed the restoration of the chipmaker to dominance shortly after his appointment. Tan's comments suggest a focus on establishing Intel as a world-class foundry.

Intel Foundry Services, part of Intel's IDM 2.0 vision, lost $13 billion last year. Despite this, the company has been making chips for other companies since 2021, but the strategy has not proven profitable.

To streamline operations, Intel also plans to step back from several projects and reduce spending. This move comes after the decision to step down from Intel by former CEO Pat Gelsinger, who was instrumental in Intel's push for third-party chip manufacturing.

However, the decision to leave the company was not mutual. Gelsinger wanted to finish what he started but was not given the opportunity. As a result, Intel still plans to lay off 24,000 employees in 2025 and reduce its total employee count to 75,000.

The structure of the deal between the government and Intel suggests that Intel maintaining majority control of Intel Foundry Services is desired by the government. This allows Intel the flexibility to seek strategic investments for its foundry services without losing majority control.

Intel Finance Chief David Zinsner shared that the US government recently paid $5.7 billion to Intel as part of the landmark deal. The warrant in the deal applies if Intel's ownership falls under 51%.

The focus on Intel Foundry Services and domestic chip manufacturing underscores the government's commitment to ensuring the US remains a global leader in technology. With the investment, Intel aims to compete with industry giants like TSMC and Samsung, ultimately establishing itself as a world-class foundry.

U.S. Government Grants Intel $5.7B, Potential Presidential Intervention Threatens Spinoff of Foundry Division