Reports are in that Intel is set to receive up to $3.5B in federal grants as part of a new deal with the U.S. government to produce advanced semiconductors for military and intelligence purposes while reducing reliance on foreign technology. The funding, expected to be announced soon, will be used to support chip production at multiple Intel facilities, including its Arizona plant.
Western governments are increasingly concerned about their dependence on microchips sourced from East Asia. Key considerations include supply chain vulnerabilities, security risks, stifled home-grown innovation, and economic impacts. In response, the Biden administration enacted the CHIPS and Science Act of 2022, aiming to reduce domestic reliance on foreign technology components. More recently, the Pentagon announced its Secure Enclave initiative.
Intel, a leading name in microprocessor and semiconductor technology, has faced revenue and profit declines since peaking around 2018. This downturn is due to stiff competition from companies like AMD and NVIDIA, recent economic challenges, and significant investments in R&D. Programs promoting U.S. domestic microprocessor and semiconductor manufacturing are a welcome benefit for Intel.
The Secure Enclave program is a crucial part of the government’s effort to bolster domestic semiconductor manufacturing for defence applications. This initiative complements Intel’s existing financial support from the U.S. government, which includes $8.5B in grants and $11B in loans under the CHIPS and Science Act of 2022. This program’s objective is reducing reliance on foreign technology, chip manufacturers and strengthen the domestic supply chain.
Secure Enclave: Reducing domestic reliance on foreign tech
The Secure Enclave project is designed to ensure that the U.S. has a reliable, domestic source of advanced semiconductors for military and intelligence applications. Although there were initial plans for the project to be funded through existing government commitments to Intel, the government decided to allocate separate funding for Secure Enclave to avoid mixing it with commercial chip production agreements. This move underscores the strategic importance of the program.
Despite competition from other chipmakers and concerns about reliance on a single company, Intel has emerged as the frontrunner for the Secure Enclave initiative, which is also aimed at reducing the U.S. dependency on foreign manufacturers such as Taiwan Semiconductor Manufacturing Co. (TSMC) and South Korea’s Samsung Electronics.
Intel’s ongoing challenges and strategic shifts
Intel has faced significant financial struggles in recent times, as competitors producing artificial intelligence (AI) chips have cut into its market share. The company recently reported larger-than-expected losses and has had to reduce its workforce. Intel’s stock price, which has dropped more than 50% this year, did rise slightly in response to the news of the $3.5B Pentagon deal, reflecting investor optimism regarding the new funding.
The deal also comes as Intel reassesses its global manufacturing strategy. The company may delay or cancel some international projects while prioritising its core facilities in Arizona and Ohio. The Secure Enclave deal adds further pressure on Intel to deliver amid the broader challenges facing its CEO, Pat Gelsinger, and his ambitious global factory investment plans.
Though Intel is a major player in chip design and production, it still relies on TSMC for some of its most advanced processors, underscoring the ongoing complexity of the global semiconductor supply chain, even with efforts to boost domestic production.
This new grant agreement highlights the Biden administration’s determination to source critical technologies domestically, particularly for defence purposes. The Secure Enclave funding, although yet to be formally announced, signifies an important step toward achieving that goal.
