These funds aim to help Intel, which lost its manufacturing edge to TSMC, repair its business model.
President Joe Biden awarded Intel nearly $20 billion in grants and loans to boost domestic semiconductor production, marking the largest U.S. government investment in chip manufacturing. In response to this Intel is planning to spend $100 billion across four U.S. states to build and expand factories and hopes to secure an additional $25 billion in tax breaks.
The focus of Intel’s five-year spending plan is to transform empty fields near Columbus, Ohio, into the world’s largest AI chip manufacturing site, starting as early as 2027. It includes revamping sites in New Mexico and Oregon and expanding operations in Arizona, where Taiwan Semiconductor Manufacturing Co is also constructing a massive factory.
The funding Intel received, part of the 2022 CHIPS and Science Act, aims to increase the U.S. share of advanced chip production from 0% to 20% by 2030. The initiative seeks to reduce reliance on China and Taiwan for semiconductors, with the U.S. share of global semiconductor manufacturing capacity having fallen from 37% in 1990 to 12% in 2020.Â
These funds will help Intel repair its business model. For years, Intel led the world in making the fastest and smallest semiconductors but lost its manufacturing edge to TSMC in the 2010s, leading to plummeting profit margins.Â
CEO Pat Gelsinger announced a plan in 2021 to return Intel to the top position, stating that government support is needed to make the plan profitable. With that assistance, Intel plans to spend about 30% of the $100-billion plan on construction costs, with the rest going towards purchasing chipmaking tools from various firms.
Gelsinger warned that the Ohio site’s timeline might slip if the chip market declines, but most purchases will be made from Intel’s existing cash flows. Analyst Kinngai Chan said it would take three to five years for Intel to become a serious player in the foundry market for cutting-edge chips, but more investment is needed before it can overtake TSMC. Gelsinger reiterated that a second round of U.S. funding for chip factories would likely be needed to re-establish the U.S. as a leader in semiconductor manufacturing. He referred to the low-interest-rate funding as ‘smart capital.’
