Chipmaker Intel Inc. is officially eligible for up to $3.5 billion in federal subsidies to make semiconductors for the Department of Defense after reaching a binding agreement with U.S. authorities, according to people familiar with the matter.
The secretive program, called “Secure Enclave,” aims to set up a production network for advanced chips for military and intelligence applications, and Bloomberg reports that it spans multiple states, including a manufacturing facility in Arizona.
Intel had always been a front-runner for the award, but opposition from other chipmakers, concerns in Washington about the wisdom of relying on a single company, and a funding battle across multiple government agencies and Congress threatened to reduce Intel’s total payout.
The funding could be announced as soon as next week, on top of $8.5 billion in grants and $11 billion in loans Intel has earmarked for funding, the people said, asking not to be identified because the discussions are private. Awards In March Chips and scienceLegislation signed by President Joe Biden in 2022 to revitalize U.S. semiconductor manufacturing and reduce reliance on Asia.
Intel is still negotiating the terms of a broader incentives package aimed at supporting facilities in Arizona, Ohio, New Mexico and Oregon. Like other CHIP Act awardees, Intel has not yet received any funds and the award is considered tentative. Funding for Secure Enclave also comes from the CHIP Act grant program administered by the Commerce Department, but was processed outside the normal application process after a dispute earlier this year over which agency would be responsible.
Intel, the Commerce Department and the Defense Department declined to comment. The White House did not immediately respond to a request for comment.
Intel shares rose less than 1% in late trading on Friday after Bloomberg reported the deal. The stock has fallen 61% this year to close at $19.66.
The Secure Enclave agreement shows that the U.S. government trusts the company to carry out the Defense Department’s plan, despite Intel’s recent troubles. Last month, Intel released a disastrous earnings report and revenue forecast, sending its stock price plummeting and destroying confidence in Chief Executive Pat Gelsinger’s ambitious turnaround plan that hinges on investments in factories around the world.
Bloomberg reported that the company is now actively reevaluating its manufacturing ambitions, and while no final decisions have been made, people familiar with the matter previously said Intel is likely to delay or cancel projects outside the U.S. beyond its flagship sites in Arizona and Ohio.
The contract also reflects the Biden administration’s lack of other options. Defense Department officials have insisted on sourcing cutting-edge semiconductors from U.S. companies, and Intel is the only U.S. company that makes advanced processors. Other manufacturers include Taiwan Semiconductor Manufacturing Co. and South Korea’s Samsung Electronics Co., both of which are building factories in the U.S. with the help of the Chip Act.
Bloomberg reported that some officials in Washington have been in early discussions about buying chips from foreign manufacturers’ U.S. facilities, but those talks have focused on broader procurement guidelines and are separate from the Secure Enclave program.
It’s unclear what models of chips Intel will produce for the Defense Department. The Santa Clara, California-based company, which has both design and manufacturing operations, still relies on TSMC to make some of its most advanced processors.
Intel has struggled to convince potential customers such as Nvidia Corp. and Advanced Micro Devices Inc. that its products are capable. Bloomberg reported that Commerce Secretary Gina Raimondo has urged the two companies to consider manufacturing at a facility Intel is building in Ohio, but neither company currently has plans to do so.
Intel has said it is exploring the possibility of other companies, including Microsoft Corp., using it for their own chip designs, but those efforts have yet to translate into big orders or significant revenue.
The Department of Defense can be a tricky customer for semiconductor manufacturers. Report A study by the National Academies of Sciences, Engineering and Medicine found that companies involved in the so-called Trusted Foundry program — a long-standing effort similar to Secure Enclave but focused on older generations of chips — often struggle to meet Department of Defense requirements or generate a return on investment from those orders.
The Defense Department was originally set to fund the bulk of the Secure Enclave program, but withdrew $2.5 billion in funding in February. Lawmakers then shifted the full cost to the Commerce Department, which was responsible for the remaining $1 billion. Bloomberg reported that at one point the department had planned to roll the new Secure Enclave obligation into funding already set aside for Intel, but officials ultimately opted to treat the program as something entirely separate from commercial manufacturing incentives.
The turmoil has spread to other companies. In the wake of the funding dispute, the Commerce Department halted plans for commercial research and development, and officials Reject Applied Materials Inc.’s funding application for the $4 billion Silicon Valley project. Efforts to add $3 billion to the chip bill that would allow the Commerce Department to revive the effort have stalled in Congress.
(Updates to add Intel shares in seventh paragraph.)
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