US Government Takes 10% Stake in Intel
Kif Leswing (via Hacker News):
Intel, the only American company capable of making advanced chips on U.S. soil, said in a press release that the government made an $8.9 billion investment in Intel common stock, purchasing 433.3 million shares at a price of $20.47 per share, giving it a 10% stake in the company. Intel noted that the price the government paid was a discount to the current market price.
Of the total, $5.7 billion of the government funds will come from grants under the CHIPS Act that had been awarded but not paid, and $3.2 billion will come from separate government awards under a program to make secure chips.
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The government will also have a warrant to buy an additional 5% of Intel shares if the company is no longer majority owner of its foundry business.
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Earlier this week, Intel announced another major backer, when SoftBank said it would make a $2 billion investment in the chipmaker, equal to about 2% of the company.
Intel will continue to deliver on its Secure Enclave obligations and reaffirmed its commitment to delivering trusted and secure semiconductors to the U.S. Department of Defense.
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“As the only semiconductor company that does leading-edge logic R&D and manufacturing in the U.S., Intel is deeply committed to ensuring the world’s most advanced technologies are American made,” said Lip-Bu Tan, CEO of Intel.
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The government’s investment in Intel will be a passive ownership, with no Board representation or other governance or information rights. The government also agrees to vote with the Company’s Board of Directors on matters requiring shareholder approval, with limited exceptions.
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The existing claw-back and profit-sharing provisions associated with the government’s previously dispersed $2.2 billion grant to Intel under the CHIPS Act will be eliminated to create permanency of capital as the company advances its U.S. investment plans.
On the one hand, this seems to come out of the blue, but it’s kind of just making Intel’s implicit quasi-government status more explicit. In addition to being a direct military supplier, Intel is at least as strategic as GM was during the GFC, and no American government is going to allow it to fail. It’s not clear to me how much strong-arming the deal required. With the funds already committed, you could look at this as the government just taking shares that were not part of the original CHIPS deal. What Intel is getting in return is the removal of some restrictive conditions, in exchange for essentially non-voting shares. Is that worth more than the dilution to shareholders? Did Congress authorize this? What happens from here? Maybe the government becomes a long-term partner, and maybe it’s not such a silent partner in reality. Maybe, with the provisions removed, Intel starts buying back shares, the stock price goes up, investors are happy, and the government sells its stake that “cost nothing” and claims victory.
Previously:
- Apple Announces American Manufacturing Program
- Making Apple S9 and A16 in Arizona
- Pat Gelsinger Out at Intel
- Intel Foundry
- AMD vs. Intel
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This is an interesting and somewhat loaded sentence: “the only American company capable of making advanced chips on U.S. soil”
A lot of history and implications there. How the heck did we get to this point? I grew up being told microprocessors were the most important innovation in human history and only the genius of America could have brought it to the world.
And now we come to this, where they are being partially bailed out by the government to fulfill bare minimum obligations while being heavily invested in and run by foreign companies. The board can’t find anyone who wants to captain the sinking ship.
And even this news is not enough to bring their stock out of the toilet it has been in for years.
Sad thing to see. The bailout of the car companies and mortgage companies was gross to see, but Intel doesn’t have the advantage of a century of government incest. And I don’t think it’s going to save them. At this point Intel is completely leaderless and rudderless. They have no vision. No amount of money is going to help when the people in charge are just financial caretakers trying to make a profit. They dug themselves too deep a hole for far too many years.
Anyway I’m just ranting now because this upsets me, it didn’t have to go this way.
@Bart Yeah, it seems like there’s a decent chance that this is too little too late and doesn’t really fix any of Intel’s core problems.
Intel gave up on its aspiration to be a market leader in chip manufacturing when they fired Gelsinger. While it is sensible for the US government to take an ownership stake in Intel, this should also come with the requirement to change Tan's strategy, which appears to be to shrink the company and focus on profitability, rather than targeting the very high end of the market.
And the investment should be higher. Ten billion is nowhere near enough to make a real dent. TSMC invests around 40 billion every year in R&D.
This is socialism. Why can we have socialism for Intel but not for American healthcare or free college?
This won’t accomplish anything except poison Intel’s brand in a new direction while the existing poison continues soaking in. Another artful deal.
> What Intel is getting in return is the removal of some restrictive conditions
I’m curious what these restrictive conditions are, and are they related to intel’s non-competitiveness in the modern market?
@pirijan I don’t have the details in front of me, but I think Intel was forbidden from doing stock buybacks and had to share profits with the government for a while. These were relatively recent (part of CHIPS) so I don’t think they made it non-competitive. Maybe they suppressed the stock a bit.
Notable Bay area tech companies have been funded by US intelligence agencies dating back to the 1960s. I view this action as admission that Intel Inside = NSA Inside. They're not yet ready to lose one of their biggest hardware backdoor manufacturers.
I'm certain AMD and other chipmakers (including Apple, which is a PRISM company) are also compromised. But Intel seems to have had the most security disclosures and severe disclosures over the last decade. I don't think that's coincidence.
@Hammer an interesting point, and to me makes me think of the conflicting duties of the NSA. To spy on foreign adversaries, and protect American interests from foreign spying.
The flip side of your point is that they may want to keep them around as the only company with which they can control the supply chain for themselves. Now I think about what the NSA themselves know about what goes on in Taiwan.
