The Biden administration plans to reduce Intel’s preliminary $8.5 billion federal CHIPS grant, a move that follows the California-based company’s investment delays and broader business struggles.
Intel, the biggest recipient of money under the CHIPS Act, will see its funding drop to less than $8 billion from the $8.5 billion that was announced earlier this year, four people familiar with the grant said. They all spoke on the condition of anonymity because the final contract had not yet been signed. The change in terms takes into account a $3 billion contract that Intel has been offered to produce chips for the U.S. military, these people said.
The government’s decision to reduce the size of the grant follows Intel’s move to delay some of its planned investments in chip facilities in Ohio. The company now plans to finish that project by the end of the decade instead of 2025. The chip maker has been under pressure to reduce costs after posting its biggest quarterly loss in the company’s 56-year history.
The move by the Biden administration also takes into account Intel’s technology road map and customer demand. Intel has been working to improve its technological capacity to catch up to rivals like Taiwan Semiconductor Manufacturing Company, but it has struggled to convince customers that it can match TSMC’s technology.
Intel’s troubles have been a blow to the Biden administration’s plans to rev up domestic chip manufacturing. In March, President Biden traveled to Arizona to announce Intel’s multibillion-dollar award and said the company’s manufacturing investments would transform the semiconductor industry.
Intel’s investment was at the forefront of the administration’s ambition to return chip manufacturing to the United States from Asia. The CHIPS Act, a bipartisan bill passed in 2022, provided $39 billion in funding to subsidize the construction of facilities to help the United States reduce its reliance on foreign production of the tiny, critical electronics that power everything from iPads to dishwashers.
To prevent taxpayer money from being wasted, Commerce Department officials set milestones for the companies to meet in order to get funds. The benchmarks included building a plant, producing chips and signing up customers to buy domestically produced products.
Intel, which lobbied aggressively for the bill’s passage, was long seen as the law’s biggest beneficiary. But its business struggles complicated its negotiations over its final award. The Commerce Department had granted the initial award to support Intel’s expansion of operations in Arizona, New Mexico and Oregon, as well as the construction of two plants in Ohio.
Intel and the Commerce Department declined to comment about the reduction in funding.
The Commerce Department has been racing to finalize contracts and begin distributing CHIPS Act funding. Earlier this month, it said it had completed the terms of a $6.6 billion grant to TSMC. The Taiwanese company is investing more than $65 billion of its own funding for the construction of factories in Arizona.
The Biden administration says that the program has already spurred significant growth in new factory construction, and that the United States is set to be the only country with factories from all five of the world’s leading chip manufacturers.
Few stood to benefit more from the program than Intel. In addition to a direct grant, the Biden administration offered up to $11 billion in federal loans and a 25 percent tax credit for its investments in new factories.
Intel is also slated to receive a $3 billion government contract to make chips for the military. The size of that contract contributed to the Commerce Department’s decision to reduce its award to Intel, said two of these people. The combination of the military contract and its CHIPS Act grant pushes its total award from the bipartisan bill to more than $10 billion.
Pat Gelsinger, Intel’s chief executive, was one of the biggest champions of the CHIPS Act. In the run-up to the passage of the CHIPS Act, he met with more than 100 lawmakers and attended a State of the Union address as a guest of Mr. Biden.
But since then, Intel’s business has faltered. Its sales declined 6 percent in its most recent quarter, and it is in the process of cutting 15,000 jobs.
The company has said its revenue in the current period will surpass $13.3 billion, which exceeded analysts expectations and lifted its share price by 12 percent. But its market value has fallen to $106 billion from a high of about $500 billion in 2000.
Intel’s troubles have made it a takeover target. In recent months, Qualcomm executives have proposed acquiring it.
The Biden administration has been concerned about Intel’s ability to fulfill its investment commitment. As the company struggled to find customers for its new plants, Commerce Secretary Gina Raimondo tried to help by encouraging executives at Google, Microsoft, Amazon and Apple to have Intel make chips for their products in the United States.
“Of course, I’d be doing everything I can to make sure Intel is successful,” Ms. Raimondo said in an interview with The New York Times last month. “But really, my message to any of these companies — whether it’s Apple or AMD or Nvidia, Amazon, all of them — is we need your demand for U.S.-made chips.”
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