Pentagon Scraps Plan to Spend $2.5 Billion on Intel Grant
(Bloomberg) -- The Pentagon pulled out of a plan to spend as much as $2.5 billion on a chip grant to Intel Corp., people familiar with the situation said, putting the onus on another federal agency — the Commerce Department — to make up for the shortfall.
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The move threatens to limit the total amount that Intel has been expecting to get in federal funding, setting up a contentious situation, said the people, who asked not to be identified because the deliberations are private. Beyond the defense money, Intel has been seeking incentives worth more than $10 billion from the Chips and Science Act.
The defense funding was part of a spending package that President Joe Biden signed into law over the weekend, and it allocates $3.5 billion for Intel to produce advanced defense and intelligence-related semiconductors.
Commerce, which disburses Chips Act grants, had previously only been responsible for $1 billion of the cost. But the Pentagon, which initially promised to cover the rest, scrapped that plan in the days leading up to a government funding deadline, said the people. Lawmakers then directed Commerce to use other Chips Act funds to make up the balance.
Read More: Intel Stands to Win $3.5 Billion to Produce Chips for Military
The shortfall is disrupting plans to distribute money from the Chips Act, a landmark piece of legislation meant to revitalize the domestic semiconductor industry. The change could mean a greater share of Intel’s Chips Act funds is devoted to military uses, rather than commercial ones. The defense deal sets up Intel as a dedicated supplier of chips for military and intelligence needs, designating a so-called Secure Enclave within the company’s factory.
It’s unclear whether the Secure Enclave funding will be swallowed into Intel’s total awards — meaning the company gets less overall money than expected — or come on top of what Intel was already set to receive, leaving less for everyone else. The Secure Enclave approach has rankled fellow chipmakers such as Globalfoundries Inc., which also is getting Chips Act funding.
Intel shares slipped as much as 1.7% in late trading after Bloomberg reported the news. They had closed up less than 1% at $45.24 earlier Tuesday.
In a statement, a Commerce Department representative said that a decision on the Secure Enclave award hasn’t yet been made and is being evaluated through a separate process.
“The Department of Commerce looks forward to continuing to work with Congress on implementing the Chips and Science Act in a manner that promotes our economic and national security,” the representative said in a statement, without commenting on specific companies.
Jeff Jurgensen, a Pentagon spokesperson, said the Defense Department will continue to work with partners across agencies and Congress to support the implementation of the Chips Act and “deliver a secure capability to meet our microelectronics requirements.”
“It would be premature to speculate on either a vendor or the nature of the capability at this time,” he said.
Negotiations are still underway, the people said. Intel declined to comment, and the White House didn’t respond to a request for comment.
Earlier: Intel in Talks for Over $10 Billion in Chips Act Incentives
It’s the latest complication for the Chips Act, which became law in 2022. The Commerce Department has emphasized that it doesn’t want to give any company a penny more than needed. The agency only has $39 billion in grant funding to build a portfolio of projects spanning large-scale manufacturing, smaller-scale supply chain efforts, and commercial research and development.
That’s a lot of taxpayer money, but it’s a drop in the bucket for the overall chip industry. Advanced chipmakers alone have requested more than double the money set aside for them. And more than 600 firms have expressed interest in federal grants. The Commerce Department also has a loans and guarantees pool worth $75 billion, but the companies aren’t all interested in that financing.
‘Very Soon’
Intel Chief Executive Officer Pat Gelsinger has told investors that the government money will help fund the chipmaker’s ambitious turnaround effort, which includes $20 billion investments in Ohio and Arizona. He aims to increase capacity and manufacture semiconductors for other companies — alongside an endeavor to restore Intel’s technological prowess.
It’s unclear when Intel’s award will be disclosed. Gelsinger said at a company event on Feb. 21 that it was coming “very soon.” The announcement was originally supposed to come before the Pentagon funding showdown, according to people familiar with the matter.
The Commerce Department has already announced three awards to firms that manufacture older-generation chips, including a $1.5 billion grant to GlobalFoundries, which is among the top suppliers of older processors to the US military.
GlobalFoundries lobbied against the defense provision for Intel as government funding bills moved through Congress last week, according to people familiar with the matter. Some lawmakers have also expressed concerns about relying on just one company — Intel — to make cutting-edge chips for the most sensitive US government applications.
Right Approach?
In a statement, GlobalFoundries said it doesn’t believe Intel’s sole Secure Enclave designation is the right solution.
“GlobalFoundries has been a secure chip provider for decades,” a company spokesperson said. “We appreciate the US government’s effort to address the challenge. We have a proven approach.”
The Chips Act received bipartisan support, fueled by concern that a faltering domestic semiconductor industry was a national security problem — particularly in light of Washington’s growing rivalry with Beijing.
Read More: TSMC to Win More Than $5 Billion in Grants for US Chip Plant
Production of advanced chips is currently concentrated on the island of Taiwan just off the Chinese coast. Intel, which once led the industry and is one of the few companies that still produces the components in the US, has fallen behind rivals such as Taiwan Semiconductor Manufacturing Co. and South Korea’s Samsung Electronics Co.
(Updates with Pentagon comment in ninth paragraph.)
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