US state bailout of Intel nears completion

The news comes courtesy of the FT, which opens its story with: “Intel and the US government are on track to finalise $8.5bn [why does billion always have to be abbreviated? - Ed] in direct funding for the chipmaker before the end of the year, even as the company tries to stabilise its ailing business, said people familiar with the discussions.”

Even as? Surely the government bailout is a direct consequence of Intel’s struggles. Government usually reserves such direct interventions for big banks and other private enterprises deemed to big to fail. While nobody is (yet) suggesting Intel will collapse, it remains America’s only domestic chip maker, which means it has a special place in the sentiments of the US state.

“Finalising the support package would amount to a vote of confidence in Intel from the US government even as the company pauses a major spending project in Germany to help address financial difficulties,” continues the FT report. They like ‘even as’, don’t they? Again, the more intuitive interpretation of a bailout package would be as a vote of concern and alarm.

The FT’s accommodating tone suggests its anonymous sources represent either Intel or the US state. If it’s the latter than that suggests our speculation at the start of this week, that the US state may be encouraging Qualcomm’s rumoured acquisition of Intel, was off the mark. On the other hand, it’s very possible that there are competing factions within Intel, one in favour of the bailout and the other against it, who are using the business press to brief against each other. Fun!

This bailout would take place under the auspices of the CHIPS Act (a classic American forced acronym - Creating Helpful Incentives to Produce Semiconductors), which is a piece of legislation explicitly designed to subsidise the US semiconductor sector. It was first spoken about earlier this year as part of a nearly $20 billion state support package for Intel, which has a market cap of around $100 billion.

It's not clear why the bailout has taken so long to play out but it seems safe to assume a major factor is what the US state wants in return for the money. At the very least it will be asking for explicit manufacturing investment commitments, not wanting to get burned as Germany has apparently been. But maybe it’s also pushing for more direct involvement in the company’s strategy or even equity and a consequent seat on the board.

As if the political incentives to be seen to be supporting its domestic semiconductor sector at a time when that industry is considered of paramount geopolitical importance weren’t already considerable, the US is about to have a general election. It seems the incumbent Democrat party feels the completion of this bailout would warm electoral sentiment towards it, but the clock is ticking.

One thing we can all agree on is that it’s completely out of order for there to be strong links between the Chinese state and its major companies, as is alleged with Huawei. This is completely different, of course. The US state is merely supporting one of its own companies out of the kindness of its heart and is in no way corrupting the global trade system to further its own geopolitical aims. Perish the thought.