Possible government acquisition of additional Intel stock looms, should the company lose its grip over its semiconductor manufacturing operations.
The Intel deal, as part of the 2022 CHIPS Act, is currently under negotiation, with the Department of Commerce working on finalizing the details. As part of the agreement, Intel has agreed to give a 10% stake to the US government, in exchange for $8.9 billion from federal grants, as allowed in the CHIPS Act.
The US government has a stipulation that for five years, Intel must own at least 51% of its foundry business. If Intel fails to meet this requirement, the US government has the option to take another 5% of the business at $20 a share. With around 4.3 billion shares in Intel, 5% of the company, at $20 a piece, would mean the US could buy that amount for around $4.3 billion.
However, Intel's Chief Financial Officer, David Zinsner, has stated that it's unlikely they would take their stake below 50%, implying the US government warrant may expire. This suggests that Intel is committed to maintaining a majority stake in its foundry business.
Spinning off Intel Foundry has been an open question in the recent past, but the current situation seems to indicate a different approach. Intel is facing instability problems with its 13th and 14th Gen chips, and ex-Intel CEO Craig Barrett recently criticized current CEO Lip Bu Tan's plan to not invest in the 14A process. Barrett stated that Intel needs a cash infusion of around $40B to be competitive.
The White House press secretary, Karoline Leavitt, has stated that the Intel deal is still being finalized. Despite the challenges, Intel shares are currently valued at just under $24 a share, but it has historically been higher, reaching as much as $50 in December 2023 and briefly hitting $70 a share in January 2020.
Interestingly, AMD's gaming CPUs have been performing better than Intel's since then. The current Intel CEO criticized by Craig Barrett as a "joke" for not wanting to invest in the 14A process is Lip-Bu Tan.
The US government is making efforts to prop up Intel, as the Biden administration had already agreed to pump billions in CHIPS Act cash into the company. The Intel deal, once finalized, could provide a significant boost to Intel's foundry business and its competitive standing in the semiconductor industry.
