The White House last week agreed to convert $8.9 billion of Chips Act grants into a 10 per cent stake in Intel, with a five-year warrant giving Washington another five per cent if Intel ever lets its ownership of the foundry dip below 51 per cent.
Intel finance chief David Zinsner told a Deutsche Bank conference the arrangement was designed to stop the company selling the division.
“I think from the government’s perspective, they were aligned with that: they didn’t want to see us take the business and spin it off or sell it to somebody,” he said.
The problem is that Intel’s foundry unit is a money pit. It lost $13 billion last year as the company flailed against TSMC and failed to attract marquee customers. Analysts at Citi, along with several ex-board members, have argued for a sale, while Qualcomm has been rumoured as a suitor.
Trump’s interference has tied Intel’s hands. Zinsner admitted the warrants were “a little bit of friction to keep us from moving in a direction that I think ultimately the government would prefer we not move to.”
The company has already trousered $5.7 billion from the deal, while the remaining $3.2 billion is contingent on construction milestones under a Department of Defence programme. White House press secretary Karoline Leavitt said the paperwork was still being finalised.
Intel’s board ousted chief executive Pat Gelsinger in December, after his ambitious foundry rescue plan drained cash and credibility. His successor, Lip-Bu Tan, has to stabilise finances while being welded to a business that Wall Street thinks should be scrapped.
Zinsner tried to put a positive spin on the arrangement, claiming the direct government stake could reassure potential clients that Intel was a safe bet. The likes of Nvidia, Apple and Qualcomm have so far stayed away, preferring TSMC’s proven processes.
He said the equity conversion removed the need to tap capital markets, since it “effectively guaranteed that we’d get the cash.” To bolster its coffers further, Intel flogged $1 billion of Mobileye shares and is close to offloading a 51 per cent stake in Altera to Silver Lake.
SoftBank ploughed $2 billion into Intel last week, which Zinsner insisted was just a coincidence and not part of any coordinated White House effort.
Whether coincidence or not, Chipzilla is now stuck with a foundry business that looks like an expensive bet Washington is determined to make on its behalf.
