Experts: Intel government stake won't fix long-term woes
A deal giving the U.S. federal government a 10% stake in Intel in exchange for funds won't necessarily ensure the company's ultimate survival, according to industry analysts.
A new deal that gives the federal government a stake in Intel could help fend off a potential doomsday scenario for the tech industry, but it doesn't mean the struggling company -- or the semiconductor industry in the U.S. -- is out of the woods yet.
Intel's downward spiral, particularly over the last year, has been well-documented, attributed to its failure to remain competitive amid the rise of GPUs for generative AI applications, which has been dominated by Nvidia. Intel has also lost market share in CPUs to rivals such as AMD in recent years. Still, the company previously had a commanding market share in both servers and PCs for decades, and Intel CPUs remain a major component of enterprise IT infrastructure worldwide.
"Everyone focuses on Nvidia and AI, which is all well and good and great, and making a ton of money, but there are a whole lot of servers out there running databases on Intel CPUs in enterprise IT shops," said Jack Gold, principal analyst at J.Gold Associates. "So if Intel fails, the whole industry is in trouble."
Meanwhile, Intel has something of interest to the U.S. government that rivals such as AMD do not: U.S.-based chip factories under its Intel Foundry business. The company has struggled to find large-scale outside customers for its latest 18A and 14A chip manufacturing processes, but the U.S. government has national security and economic reasons to want computer chip manufacturing that's based in the U.S. rather than Taiwan or China. AMD partners with Taiwan Semiconductor Manufacturing Company (TSMC) for chip manufacturing.
Propping up U.S.-based semiconductor manufacturing is a notion that predates the current Trump administration, but as of Friday, that administration changed the terms of funding for Intel and other chipmakers set forth by the U.S. CHIPS and Science Act during the Biden administration. Now, Intel will issue additional shares in the company that represent a 9.9% non-voting stake in the business to the U.S. Department of Commerce in exchange for the release of $8.9 billion in funds the company had been granted under the Biden-era legislation.
Industry reacts to news of Intel government stake
The government stake in Intel prompted widespread discomfort, given the capitalist economic culture in the U.S., where government ownership over the means of industrial production is met with trepidation. An Intel Form 8-K released Monday indicated that the U.S. Department of Commerce will not have representation on the Board of Directors, quelling those fears somewhat, but many outstanding questions about the timing of the transaction and additional conditions required to secure the funding remain unanswered, according to the 8K.
The form also outlined the potential risks of the government deal, especially its possible effect on Intel's business outside the U.S.
"Sales outside the US accounted for 76% of the Company's revenue for the fiscal year ended December 28, 2024," the form states. "Having the US Government as a significant stockholder of the Company could subject the Company to additional regulations, obligations or restrictions, such as foreign subsidy laws or otherwise, in other countries."
In the short term, the funding injection could restore confidence among enterprise IT buyers in the chipmaker amid a 50% drop-off in its stock price last year and previous calls from President Trump for its CEO, Lip-Bu Tan, to step down, said Patrick Moorhead, CEO and chief analyst at Moor Insights and Strategy.
"Intel technically wasn't teetering on the brink of financial calamity, but the difference between perceptions and reality can be pretty stark," Moorhead said. "I have heard, 'Oh my gosh, how long can Intel survive? How long can they do this?' They look at the President calling for the firing of the CEO, [which] would have meant even more churn inside of Intel. And then if you're [invested in] Intel as an enterprise, you might wonder, 'What does the future look like?'"
Steven Dickens
Tech industry analysts said it's clear that Intel is "too big to fail," echoing a catchphrase from the global financial crisis in 2007 and 2008 that saw widespread U.S. government investments to bail out various industries. While enterprise IT buyers are two or three degrees removed from chip foundries, which typically supply the server hardware suppliers they buy from, the downstream effect of chip foundries on tech and the global economy is potentially massive, according to Steven Dickens, CEO and principal analyst at HyperFrame Research.
"Intel is an edge case," Dickens said. "The means of production should stay with companies, but it's strategically important that the U.S. has a solid foundry provider -- it's so foundationally important to the modern structure of our world."
Not just the U.S., but much of the Western world also has its semiconductor supply chain concentrated in Taiwan, which is potentially subject to conflict with China, Dickens said.
Systemic problems remain for Intel and the industry
While the Intel government stake acts as a potential short-term boost, it's merely a step toward solving the company's biggest problem, which is finding an outside, high-scale customer for its next-generation 14A chip manufacturing process. Without such a customer, Intel would only be funding a new foundry facility for its own internal needs, the economics of which aren't feasible.
Imagine getting all our wheat from one field in Nebraska, for example -- [sourcing the global semiconductor supply chain solely in Taiwan] is the same kind of scenario. But [Intel] can't fill those new factories just by itself -- it's like having a 100-acre farm just to grow your own food.
Jack GoldPrincipal, J. Gold Associates
"Imagine getting all our wheat from one field in Nebraska, for example -- [sourcing the global semiconductor supply chain solely in Taiwan] is the same kind of scenario," Gold said. "But [Intel] can't fill those new factories just by itself -- it's like having a 100-acre farm just to grow your own food."
In fact, prior to the government stake announcement, Intel's Tan said in a public statement that Intel will only further invest in the 14A manufacturing process "based on confirmed customer commitments."
The $8.9 billion afforded by the government stake also won't account for the estimated $28 billion investment it would take to finish building out Intel's newest factory near Columbus, Ohio. Without that new facility, Intel won't be able to regain its status as an innovator in semiconductor manufacturing, according to Gold.
"Intel was two to three years ahead of the industry over the last decade or so, then they just totally blew that. They screwed up, and that's being polite. So how do they get that back?" he said. "They're investing in 18A to begin with, and 14A afterwards, and they have got to be successful in that space."
On the chip design side of the Intel business, it could potentially capture a new opportunity to revitalize its CPUs as generative AI workloads become more efficient and move away from massive clusters of GPUs to more conventional x86-based infrastructure, Gold said.
Tim Crawford
If not, this gap could potentially be bridged by competitors such as AMD and Qualcomm, but shifting to new chip suppliers could be disruptive to enterprises, said Tim Crawford, CIO strategic adviser at Avoa, a research and advisory services firm in Rolling Hills Estates, Calif.
"The [government] stake in Intel provides Intel with more runway to maintain their business, but it does not provide a long-term solution to Intel's woes," Crawford said.
Intel must decide whether to separate its foundry and design businesses, according to Moorhead. Either way, the foundry business will need beefed-up oversight from qualified advisors to right the ship, he said.
Even if all goes perfectly for Intel as a result of the government stake, it won't necessarily propel the U.S. semiconductor industry forward, Crawford said.
"Taking an equity stake in Intel does not encourage further research and development, nor production of semiconductor technology within the U.S.," he said. "The bigger opportunity would be to invest in research organizations that are leading the innovation in the space and encourage long-term investment [there]. The CHIPS Act was intended to do some of this. Removing funding for research institutions takes away from this."
Beth Pariseau, a senior news writer for Informa TechTarget, is an award-winning veteran of IT journalism covering DevOps. Have a tip? Email her or reach out @PariseauTT.
Steven Dickens
Tim Crawford
