Can Intel make a chipmaking comeback?

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This is an EUV Machine that’s used to make microchips. It costs hundreds of millions of dollars, and is key to Intel’s comeback plan. But there’s a problem. Intel might scrap the project. The company is struggling to find customers, as low yields mean most chips made using its new 18A process don’t work. This is just another failure for the company whose name used to be synonymous with quality components. It missed out on smartphone chips and the AI chip boom too. Intel is losing money, and is considering dropping chip manufacturing altogether.

But this would be a huge loss for the US. Its biggest chip designers, like Nvidia, AMD, and even Intel itself all rely on Taiwan Semiconductor Manufacturing Company for advanc ed chip production. The firm has an almost monopoly due to its world-leading technology used in its fabrication plants. But geopolitical tensions with China threaten the reliability of Taiwan’s supply chains. Intel is less advanced than TSMC, but its new 18A and 14A processes have been promised to provide the US with domestic advanced chip manufacturing, reducing its reliance on Taiwan. However, without intervention, the company looked like it would be unable to fund this venture.

Recognising the fragility of US semiconductor supply chains, Biden provided $280bn of funding for domestic research and manufacturing in the 2022 CHIPS act. Through the bill, Intel was awarded $7.9bn, 2.2bn of which it has received so far. Then in August President Trump organised the US to take a 10% stake in Intel for $8.9bn, using the remaining 5.7bn in grants and 3.2bn from the Secure Enclave Program.

This deal was preceded by a $2bn investment from Softbank, and a $5bn investment from Nvidia soon followed. These stock purchases, all through equity issues, provided funding for Intel’s chip manufacturing. Although they caused a 14% share dilution, the deals increased market confidence, which drove Intel’s stock price higher.

Nvidia’s investment into Intel also came with the news of an AI infrastructure and computing products joint venture between the firms. This adds a second customer to Intel’s 18A infrastructure, as Microsoft had reportedly organised a deal to produce AI chips. There is also speculation that Trump will strongarm further US companies into using Intel’s chip foundries. Intel needs its 18A process to succeed, or it may withdraw from the manufacturing market. By cancelling its future 14A project Intel would leave the US again reliant on TSMC for advanced chip manufacturing. So the government added a poison pill to disincentivise this. If Intel loses at least 51% of its manufacturing business, the US can purchase an additional 5% of the company at a discounted share price.

If Intel can improve 18A yields and attract more customers, it may be the start of a domestic chipmaking boom. But if problems persist, the company will be dragged down by an unprofitable manufacturing arm, trapped by a government that refuses to let it cut its losses.

References

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