“Is Intel too big to fail?”: Analysts question Trump’s $9 billion deal
Critics warn government cash will not fix weak yields or lure customers to Intel’s foundry arm.
U.S. President Donald Trump is injecting nearly $9 billion into Intel in exchange for a 9.9% equity stake. But analysts say the money, funding that the struggling chipmaker was already slated to receive under a federal program, will not be enough for its contract chipmaking business to thrive.
What Intel needs are external customers for its advanced 14A manufacturing process, an unlikely prospect in the short term.
CEO Lip Bu Tan, who took the top job in March, warned last month that the company may have to exit the contract chipmaking business if it fails to land major clients. “Going forward, our investment in Intel 14A will be based on confirmed customer commitments,” he said.
Kinngai Chan, an analyst at Summit Insights, underscored the economic reality of Tan’s warning: “Intel must secure enough customer volume to go to production for its 18A and 14A nodes to make its foundry arm economically viable,” he said. “We don’t think any government investment will change the fate of its foundry arm if they cannot secure enough customers.”
The company, once synonymous with U.S. chipmaking dominance, has stumbled after years of mismanagement, ceding its manufacturing lead to Taiwan’s TSMC and losing ground in the race for artificial intelligence chips to Nvidia.
Now, at an impasse, Intel must prove it can produce advanced chips to win customers. Reuters has reported that its 18A process, less advanced than 14A, is already struggling with yields, the measure of how many usable chips are produced.
Large foundries like TSMC absorb early yield losses when working with customers such as Apple. For Intel, which has posted net losses for six consecutive quarters, that’s harder to do while still maintaining profitability.
“If the yield is bad then new customers won’t use Intel Foundry, so it really won’t fix the technical aspect of the company,” said Ryuta Makino, an analyst at Gabelli Funds, which holds Intel stock. Makino, who believes Intel will eventually achieve competitive yields, nonetheless called the deal a net negative compared with simply receiving the promised CHIPS Act funding under the Biden administration. “This isn’t free money,” he said.
The federal government will not take a seat on Intel’s board but has agreed to vote alongside the company on matters requiring shareholder approval, subject to limited exceptions. The government is acquiring its shares at a 17.5% discount to Friday’s closing price.
The stake makes Washington Intel’s largest shareholder, though neither Trump nor Intel disclosed the timing of the transaction. Intel shares closed up 5.5% Friday on the news but slipped 1% in after-hours trading once the deal’s terms were disclosed. They are up 23% this year as Tan has announced sweeping job cuts.
‘Marginally Weaker Appetite’
The investment, the latest extraordinary intervention by the White House in corporate America, aligns with Trump’s push to revive domestic manufacturing and create jobs. It follows his criticism earlier this month of Tan as “highly conflicted” over ties to Chinese firms, before later backing the CEO.
Some analysts say Intel could benefit from Washington’s support, particularly in scaling up factories. Intel has pledged more than $100 billion to expand its U.S. plants and expects high-volume production at its Arizona site later this year.
“To have access to capital and a new partial owner that wants to see you succeed are both important,” said Peter Tuz, president of Chase Investment Counsel.
Intel said the $8.9 billion investment is in addition to $2.2 billion in grants already awarded, bringing the total government commitment to $11.1 billion. Washington will also receive a five-year warrant, priced at $20 a share, for an additional 5% stake, exercisable if Intel no longer owns at least 51% of its foundry business.
“On one hand, a government stake could be seen as a signal that Intel is ‘too big to fail.’ On the other, people worry about governance implications and whether the company can still act fully in shareholders’ interests,” said Andy Li, senior analyst at CreditSights. “The company is not receiving incremental government funding, which suggests a marginally weaker appetite from Washington to provide additional support.”
The deal comes days after a $2 billion investment from SoftBank.
“This is a great deal for America and also a great deal for Intel. Building leading-edge semiconductors and chips, which is what Intel does, is fundamental to the future of our nation,” Trump said Friday.
