If the U.S. Department of Defense rescinds the $2.5 billion grant, it is unlikely to greatly impact Intel, according to market experts.
It appears that the U.S. Department of Defense may retract its agreement to finance a $2.5 billion grant for Intel’s development of advanced military and intelligence semiconductors. Following the Department of Defense’s decision, the obligation to provide Intel an approved $3.5 billion funding package may fall on the U.S. Department of Commerce. This funding package is a part of a $460 billion government expense suite authorized by President Joe Biden just recently.
Sources, who choose to be unidentified, revealed to Bloomberg that the plan to finance the grant was abandoned by the Pentagon just before the massive spending package was approved.
To finance the grant, the Commerce Department might need to use funds allocated by the 2022 CHIPS and Science Act as reported by Bloomberg. Neither the Department of Defense nor the Commerce Department was immediately available to provide a statement upon request.
The CHIPS Act encompasses $39 billion in subsidies for chipmakers to manufacture chips in America and an extra $13 billion for semiconductor research & development. The law also allocates $200 billion for other scientific R&D. Should more funding from the Intel grant be shifted to the CHIPS budget, there may be reduced funding for commercial chips and increased funding for specialized military chips.
Intel is seeking roughly $10 billion in funding via the CHIPS Act, exclusive of the $3.5 billion from the government spending bill. It remains uncertain whether the Department of Defense’s alleged decision to withdraw its funding would mean Intel would receive less money from the government through the CHIPS Act, or whether other chipmakers would bear the brunt with potentially less money available in the CHIPS Act.
Over the last three years, Intel has been working to reinvent itself as a chipmaker for other tech corporations, and it recently secured a $15 billion deal with Microsoft for the development of chips for the era of Artificial Intelligence.
However, Alvin Nguyen, a senior analyst at Forrester, points out that the supposed DOD decision to withdraw funding should not significantly impact Intel. “In terms of Intel’s ability to rebuild itself as a chipmaker for hire, it should not have any effect unless the reason for withdrawing the funding is due to a scandal,” Nguyen commented. “The success of Intel securing clients to use its current and future fabrication services depends on whether or not they meet the clients’ requirements.”
Nguyen highlighted that the $2.5 billion price tag is only a small part of the overall expense of a new fabricating facility. “The allocated funds won’t substantially affect the number of facilities they can refurbish.”
A definitive decision regarding CHIP Act funding hasn’t been made by the U.S. government yet, implying the Department of Defense (DOD) is coordinating with other government agencies to prevent overlapping funding, said Mario Morales, the Group Vice President for Enabling Technologies and Semiconductors at IDC.
Intel had sent in four proposals for U.S. government funding the previous year, and it wasn’t assured they would succeed in all four, Morales stated. More than 400 applications for CHIPS Act funding were submitted by companies.
Reduced funding from the DOD could result in a slight postponement in Intel’s plans, especially considering the five to seven-year timeline required to construct chip manufacturing plants, according to Morales. “Intel might have lesser focus on projects related to the government or military, or a delay might occur in the initiation of production for military grade process nodes due to the lack of DOD funding.”
Working with the DOD is more about “visibility than volume” for Intel, he added.
