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Pentagon Rejects $2.5 Billion Chip Grant for Intel: Commerce Left Holding the Bag?

The Department of Commerce, originally tasked with disbursing CHIPS Act grants, is now accountable for covering the entire $3.5 billion cost, rather than just the $1 billion initially allocated plus the Pentagon's funding.
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Introduction:

The Pentagon’s decision to retract an Intel chip grant raises questions about the trajectory of the semiconductor industry.

This move signals potential shifts in government support and priorities, with ramifications for both Intel and the broader semiconductor market.

Understanding its implications is crucial amidst global semiconductor supply chain challenges.

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Background of Intel Chip Grant:

Recent reports indicate that Intel was set to receive substantial government funding and special treatment for a “secure enclave” under the CHIPS Act, designed for all US semiconductor companies. However, the Pentagon has withdrawn its planned $2.5 billion contribution, leaving the Commerce Department to cover the shortfall, according to Bloomberg.

The Department of Commerce initially allocated $3.5 billion, with Intel slated to receive $1 billion and the Pentagon to provide the rest. The potential $2.5 billion gap could be filled using other CHIPS Act funds guided by the Commerce Department. This setback affects not only Intel but also other beneficiaries, depending on the distribution of the remaining funds.

Further analysis from The American Prospect underscores concerns about the optics and management of Intel’s proposed $3.5 billion “secure enclave” facility. A senior adviser and research professor at Georgetown University noted that this allocation represents nearly 10 percent of the entire CHIPS Act fund, potentially limiting opportunities for other recipients.

Lawmakers are now directing the Commerce Department to find alternative funding within the Chips Act grants. Despite the Pentagon’s withdrawal, Intel’s “Secure Enclave” will still be used for military and intelligence applications. It’s unclear if funding for the Secure Enclave will be deducted from Intel’s total award or provided on top.

The CHIPS Act aims to rejuvenate American fabrication and manufacturing operations, making the decision to allocate a significant portion of funds to the leading market player seem misguided. Additionally, it’s concerning that Intel is reportedly requesting additional funds beyond the $10+ billion already allocated through the CHIPS Act. Reports suggest that the total demands from all companies covered by the CHIPS Act now exceed $70 billion, which is roughly twice the available funding.

Details of the Withdrawal:

The withdrawal of Pentagon funding for Intel’s chip grants is reported to have occurred in the days leading up to a government funding deadline.

While US President Joe Biden had signed a spending package allocating US$3.5 billion to Intel for producing advanced defense and intelligence-related semiconductors, the Pentagon’s withdrawal has disrupted these plans.

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Implications for Intel and the Semiconductor Industry:

The withdrawal of Pentagon funding raises concerns about the total amount of federal funding Intel will receive and the impact on its chip production initiatives.

Additionally, it highlights potential tensions between military and commercial interests in the allocation of federal funds for semiconductor manufacturing.

One contentious issue is the designation of Intel as a dedicated supplier of chips for military and intelligence needs, which involves the creation of a “Secure Enclave” within Intel’s factory. The exact implications of this designation on Intel’s overall funding and its competitors remain unclear.

Furthermore, the withdrawal of Pentagon funding underscores the challenges and complexities involved in implementing the Chips and Science Act.

With limited funds available compared to industry demand, decisions regarding fund allocation must balance economic considerations with national security priorities.

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Intel’s Response and Future Outlook:

Intel has refrained from commenting on the situation, while negotiations and evaluations regarding the Secure Enclave award are ongoing.

The company’s CEO, Pat Gelsinger, has previously emphasized the importance of government funding in supporting Intel’s turnaround efforts and expanding semiconductor manufacturing capacity.

Despite the uncertainty surrounding Intel’s funding and the broader implications for the semiconductor industry, there remains optimism about the potential benefits of government support for domestic chip manufacturing.

However, careful consideration and collaboration between government agencies, industry stakeholders, and lawmakers will be essential in navigating the complexities of semiconductor policy and funding allocation.

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Conclusion:

The withdrawal of Pentagon funding for Intel chip grant underscores the challenges and complexities of supporting the domestic semiconductor industry.

While the Chips and Science Act represents a significant step towards revitalizing chip manufacturing in the United States, issues such as fund allocation, national security priorities, and industry competition require careful attention and strategic decision-making.

Moving forward, continued collaboration and dialogue between government, industry, and other stakeholders will be crucial in ensuring the success and sustainability of domestic semiconductor production.

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