US plans to shrink Intel’s $8.5B CHIPS funding to below $8B — restructuring takes into account chipmaker’s $3.5B contract to make chips for the military

The U.S. government is scaling down Intel’s proposed $8.5 billion federal chips grant to less than $8 billion, partly due to a $3.5 billion contract Intel secured to produce chips for the Pentagon, reports the New York Times. The company will still have more money from the government than any other chipmaker funded under the CHIPS and Science Act. Still, Intel’s recent woes made the U.S. government worry about the company.

Earlier in the year, the Biden administration committed nearly $20 billion in grants and loans to Intel to help it expand its manufacturing operations in the U.S. The preliminary funding included $8.5 billion in grants and up to $11 billion in loan guarantees to help construct new production facilities in Arizona, New Mexico, Ohio, and Oregon. Also, the company got $3.5 billion from the U.S. Department of Defense to build chips for government, military, and secret service agencies in America.

The combination of Intel’s military contract and CHIPS Act funding now totals over $10 billion in federal support. However, Intel delayed its Ohio campus project, initially scheduled for completion in 2025, to the end of the decade, citing uncertainties with demand.

Consequently, the Commerce Department has expressed concerns about Intel’s ability to attract sufficient demand for chips produced in the United States. To address this, Commerce Secretary Gina Raimondo has engaged companies like Apple, Google, and Microsoft to encourage their purchase of chips made in the U.S. Microsoft already has a supply contract with Intel Foundry. In contrast, Apple has almost exclusively used TSMC for years.

Also, Intel’s recent struggles have raised concerns about its ability to meet the funding benchmarks set by the U.S. Commerce Department.

Intel’s reduced federal grant reflects the strategic balancing of public investments in the sector. Apparently, the U.S. government believes that the Pentagon’s $3.5 billion contract, in addition to a lowered grant under the CHIPS and Science Act, provides Intel with enough money to build its new manufacturing facilities.

However, it should be noted that chips for the Pentagon and secret services will be made under the Secure Enclave program, which requires Intel investments. The Secure Enclave program aims to produce state-of-the-art chips for defense and intelligence within secure environments, ideally in facilities isolated from other production. However, due to the high cost of modern fabs, building separate cleanrooms for military-grade chips is financially impractical. Intel appears to have adopted alternative methods to meet these security requirements. The program spans multiple states and includes Intel’s Arizona campus, which houses the 18A-capable Fab 52 and Fab 62.

Despite the reduction, Intel remains crucial in the U.S. government’s efforts to modernize and expand the domestic semiconductor industry. Intel is the only U.S. company producing chips on leading-edge nodes, so it has always been more likely to land orders from the government, which is how it got the contract with the Pentagon. The company’s most advanced technology —18A — will begin mass production in 2025. It is projected to be the most sophisticated semiconductor manufacturing technology in the U.S. for quite some time, as TSMC cannot export its latest nodes overseas.