It’s a legacy that’ll likely end up being studied in grad school business books for years to come.
But whether it’s a story of success or failure remains to be seen.
In its 50-plus year history, Intel has gone from the world’s dominant semiconductor chip producer to verging on the edge of failure.
Not necessarily a reputation you like to hang your hat on.
In our last post, we said the government tends to make bad decisions when it comes to spending investing your money. Early this year, Intel put in and received the promise of a big chunk of Chips Act money to help build new fabrication and research facilities in Arizona.
If only $20 billion were the solution to all Intel’s problems.
The Big Arizona Bet
By way of a little background, Intel has committed to building two state-of-the-art fabrication plants (known as “fabs”) in Chandler, Arizona that will employ the company’s latest chipmaking process known as “18A.”
That number describes a 1.8 nanometer-class chip that would effectively compete with the 2nm and 3nm chips currently produced by Taiwan Semiconductor Manufacturing (TSM) — the world’s biggest contract fab.
Intel’s plan is to further compete with the likes of TSM by splitting their business into design-side and the manufacturing-side entities. CEO Pat Gelsinger explained In a recent company memo:
A subsidiary structure will unlock important benefits. It provides our external foundry customers and suppliers with clearer separation and independence from the rest of Intel. Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation.
Some prospective customers have taken note.
Amazon Web Services recently cut a deal with Intel to co-invest in a custom chip design based on the 18A platform for its servers. The deal was “a multi-year, multi-billion-dollar framework,” according to the press release.
On paper, this all sounds like a step in the right direction. Except the road ahead is anything but smooth. Fortune recently reported:
Meanwhile, costs for Intel’s planned Arizona fabs and two more in Ohio have soared past initial projections. The Arizona plants, which Intel is counting on having online in 2025, have been hit by construction delays.
Which has impacted the availability of $20 billion from the Chips Act:
In March it was awarded $8.5 billion in direct CHIPS funding and $11 billion in loans. But the money is tied to Intel hitting certain construction milestones, and it has yet to receive any funds.
And if that wasn’t enough…
And in September, Reuters reported that Broadcom, which makes networking and radio chips, had tested Intel’s process and concluded it was not yet ready for full production.
According to the WSJ: “Intel’s manufacturing arm is money-losing and hasn’t gained strong traction with customers other than Intel itself since Gelsinger opened the factories to outside chip designers three years ago.”
Completing the business split and getting the new fabs into production are critical for Intel’s future success.
White Knights to the Rescue?
Just two weeks ago, rival chip manufacturer Qualcomm approached Intel to discuss a possible takeover.
Intel’s stock popped. Qualcomm’s took a hit.
That’s because the deal would be a major financial stretch for QCOM.
The deal would be valued significantly above the amount of cash Qualcomm has on its balance sheet and would require taking on significant debt or diluting the company’s shareholders. This deal is viewed as a longshot at best.
Not long after the Qualcomm news broke, Apollo Global Management approached Intel with another offer to support their turnaround efforts:
Bloomberg reported, citing sources familiar with the matter, that Apollo recently proposed an equity-like investment of up to $5 billion to Intel’s management. The people said Intel execs were mulling over the proposal. There were no definite, as the investment could change or fall apart.
And there’s more good news coming from the government…
The Biden-Harris Administration announced today that Intel Corporation has been awarded up to $3 billion in direct funding under the CHIPS and Science Act for the Secure Enclave program. The program is designed to expand the trusted manufacturing of leading-edge semiconductors for the U.S. government.
This is a DoD targeted program that’s separate from the other $20 billion that’s stuck in limbo.
Can They Be the Comeback Kids?
Intel has a history of being on the wrong side of industry trends. (Like when it opted not to provide Apple with chips for its iPhone and ignored its GPU division as Nvidia was making inroads into the AI trend.)
Yet there’s always hope to right the ship.
Meta managed to do it — with a disciplined program of slashing costs and refocusing on its core business — after a disastrous investment in the metaverse that cost them three-quarters of their market cap in a little over a year.
But can Intel?
Given their history in the chip business, they’ll certainly be a stock to watch…