Intel’s future uncertain as new CEO grapples with Trump’s policies

The Biden administration pumped billions of dollars in grants into Intel under the Chips act to try and support its chase to get back to its global position in the semi-conduct race.

Analysts expect Tan to follow former CEO Pat Gelsinger, in keeping the chip design and manufacturing operations together, a plan that will be music to the eras of employees in the Leixlip plant who received a letter from Tan vowing to make Intel a top foundry, an industry term for a contract semi-conductor chip manufacturer.

Reviving Intel’s chip-fabricating operations is probably the most difficult part of Tan’s job and one that is at odds with the Trump administration’s bid to rebuild American manufacturing. Securing high-tech supply chains is key to the US goals and ensuring them for semiconductors is arguably the most important pillar, beyond even steel or cars.

However, Tan’s job has been complicated by president Donald Trump's campaigns to stop the Chips Act, under which the Biden administration granted up to $8.5bn (€8.1bn) in direct funding to Intel as part of its $100bn plan to set up new factories across the US.

Instead, the president hopes to achieve similar goals via the threat of tariffs, which he claims encouraged the foreign-owned Taiwan Semiconductor Manufacturing Company (TSMC) that replaced Intel as the world’s leading maker of advanced chips, to commit to $100bn of investment in the US.

Part of the problem is that in recent years Intel has spent significantly less on manufacturing than its rival. In the last four years, the percentage of Intel’s capital expenditure has fallen significantly behind competitors such as TSMC who have been supplying to lead AI chip designer Nvidia. 

The mistaken strategy by Intel of spending enormous amounts of cash in buying back its own shares rather than investing is now coming home to roost.

Lagging behind 

With new AI chipsets constantly pushing the boundaries of semiconductor capabilities, a less-than-cutting-edge chip manufacturing capability represents a significant handicap for Intel.

Even with additional Irish government incentives for expansion in Ireland, Intel will have a lot of ground to make up. The company has had no major breakthroughs in chipmaking besides developing and making smaller chips. Now, they are behind in AI chip development and cannot produce the latest AI-required chips, which analysts say competitors such as TSMC and Samsung can.

However, to catch up Intel will require additional investment. Intel has been trying a 'quick win' strategy. Facing declining revenues, and with a $16.6bn (€15.8bn) loss in the third quarter of 2024, Intel announced in July its plan to spin off its foundry business in Ireland into an independent subsidiary.

A sale of a 49% stake in its Fab 34 chip plant in Leixlip, was agreed last year to investment firm Apollo Global Management.

The $11bn deal is part of Intel’s effort to fund the expand its chip manufacturing facilities while maintaining a 51% controlling interest in the Irish joint venture.

However, many analysts see this as an ill-advised decision. Spinning off Intel’s foundry operations may offer short-term gains, but it would make the US semiconductor supply chain more vulnerable to disruptions. It would also put Intel’s federal CHIPs funding at risk. The US government is investing heavily in domestic semiconductor manufacturing to create jobs and ensure a supply of advanced chips designed and produced in the US

If Intel continues the sell off its manufacturing division, it will follow a strategy similar to other major players in the industry, such as Advanced Micro Devices (AMD) who made the transition to a pure chip design company in 2008 by divesting its manufacturing business. AMD's manufacturing division later became GlobalFoundries (GF), now one of the top five foundries globally.

Following this route may be the better long-term solution for continuity of the Intel’s Leixlip facility.