Trump Made Intel An Offer It Couldn't Refuse

Comment We know US President Donald Trump isn't a fan of the US Chips Act. But, turn a government handout into a tit-for-tat transaction and the self described "master dealmaker" is singing a different tune.

And so, in a desperate attempt to cut through the red tape, new-ish Intel CEO Lip Bu Tan on Friday conceded 10 percent of his company, about 433 million shares, to Uncle Sam in exchange for $8.9 billion of funding held hostage by the current administration. Remember, Intel has already spent tens of billions of dollars on fabs with the understanding its investments in US manufacturing would be rewarded.

The entire deal came just weeks after Trump called for Tan's resignation citing his ties to Chinese chip firms, which include SMIC. But after meeting with Tan earlier this month Trump flipped the script, praising the company and the man holding its reins. And now we know why.

What's changed

From a practical standpoint, not all that much has changed. Instead of a subsidy, the US government now holds a sizable stake in the chip giant. Trump is always about the optics, and it's easier to point to equity than a promise.

From the sidelines, it's hard not to see this deal as extortion. The President after all was holding all the cards. Intel has received just $2.2 billion in subsidies owed under the Chips Act so far, and with the division burning through $3.17 billion a quarter as it strives to enter the foundry business in a big way, Chipzilla could use as much capital as it gets.

Yet, the move shouldn't come as much of a surprise for anyone who's been paying attention. Trump played a similar game back in March when he used the specter of massive semiconductor tariffs – which still haven't materialized – to scare TSMC into bolstering its US investment to the tune of $100 billion.

Will TSMC actually build all those fabs or scale back the moment Trump is out of office? Who knows? But it's largely the same story, with Trump playing the part of the New York mob boss. "That's a nice business you got there, would be a real shame if we had to tax your customers." Or in the case of Intel, if its unpaid CHIPS funds were to get lost in government red tape.

For better or worse, the US is now a shareholder in the chipmaker's success, which makes sense given Intel's strategic importance to national security. Remember, Intel is the only American manufacturer of leading edge silicon. TSMC and Samsung may be setting up shop in the US, but hell will freeze over before the US military lets either of them fab its most sensitive chips. Uncle Sam awarded Intel $3.2 billion to build that secure enclave for a reason.

Put mildly, The US government needs Intel Foundry and Lip Bu Tan needs Uncle Sam's cash to make the whole thing work. It just so happens that right now Intel isn't in a great position to negotiate.

Unfortunately, $8.9 billion isn't going to move the needle much for Intel unless it can stanch the bleeding. Last year Intel's Foundry division lost a whopping $13.4 billion. However, it's not just about the cash. As you might recall, along with the subsidies, CHIPS Act recipients are eligible for a 35 percent tax credit on foundry investments. Now those tax credits are just as much to the US government's advantage as they are Intel's.

Intel still needs customers to make it work

All the cash and tax breaks in the world won't change the root cause of Intel's trouble: the company can’t seem to convince anyone of consequence to let it fab chips for them. Not even Intel's product teams seem all that thrilled about its building chips inh ouse anymore. Over the last few years, Intel's Product divisions have become increasingly reliant on TSMC for manufacturing. In fact, most of Intel's current portfolio is now outsourced.

Some of that product stack is coming back in house this year. Most notably Intel's Panther Lake line of CPUs will be built on Intel 18A. Intel also plans to fab its Clearwater Forest e-core Xeons on the same process next year, though we'll note Intel never stopped fabbing Xeons.

While that should be good for Intel's bottom line, it won't last. Michelle Johnston Holthaus, Intel's CEO of Products, has already said that Nova Lake, Panther Lake's successor, will use a combination of Intel and TSMC fabs.

If Intel can't find a hero customer for its upcoming 14A process tech soon, Tan warned its foundry wouldn't be long for this world. However, with the US now holding a minority stake, it seems unlikely Intel could abandon the division if it wanted to. The US's stake doesn't buy a board seat or voting rights, but as a publicly traded company Intel has an obligation to its shareholders, and that now includes the American tax payer and all the bureaucracy that comes with it.

Moreover, if Intel does end up owning less than 51 percent of its foundry biz within the next five years, Uncle Sam is entitled to another 5 percent of the company. The value of a chip fab that doesn't control the means to its own production is debatable.

• US government snaps up 10% of Intel for $8.9B
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• AWS still cares enough about Intel to order up a fresh batch of custom Xeons
• Trump does a 180 on Intel chief following White House meeting

While the government can't afford to let Intel fail, the deal still has risks. For one, Intel is now a state-backed enterprise, something it warned in a recent SEC filing could end up costing its customers both on the Products and Foundry sides of the business.

"There could be adverse reactions, immediately or over time, from investors, employees, customers, suppliers, other business or commercial partners, foreign governments or competitors. There may also be litigation related to the transaction or otherwise and increased public or political scrutiny with respect to the Company," Intel wrote in the SEC filing.

According to the filing, roughly three-quarters of Intel's revenues came from outside the US. Like or not, Intel's business is now directly associated with a man whose trade policies change with the wind from one week to the next. Imagine what it'd feel like losing a massive chip deal to AMD not because they're better, but out of spite for the president.

On the flip side, it wouldn't surprise us to see countries investing heavily in Intel silicon in a bid to win favor. ®