US approves subsidy for Intel's chip manufacturing expansion

The US Commerce Department has announced that it is finalising a $7.86 billion government subsidy for Intel (INTC.O).

This amount is less than $8.5 billion initially revealed in March after the California-based chipmaker secured a separate $3 billion award from the Pentagon, Caliber.Az reports via foreign media.

This funding will help support nearly $90 billion in manufacturing projects across Arizona, New Mexico, Ohio, and Oregon. Commerce Secretary Gina Raimondo stated, "That means American-designed chips being manufactured and packaged by American workers in the US by an American company for the first time in a very long time." Intel has already reached some initial project milestones and will receive at least $1 billion of the award by the end of December, according to a government official who spoke to reporters.

The official added that the reduction in the grant was not related to Intel's broader challenges this year. The company has faced narrowed margins and laid off thousands of employees after years of heavy spending under Chief Executive Pat Gelsinger.

The $7.86 billion subsidy is the largest granted under the 2022 law aimed at increasing domestic semiconductor production, which allocates $52.7 billion in funding, including $39 billion for semiconductor manufacturing and $11 billion for research. In September, Intel secured a $3 billion contract with the Defense Department, following the announcement of the initial $8.5 billion in grants.

However, funding for the Pentagon contract was drawn from the $39 billion allocated by US lawmakers for chip manufacturing subsidies, rather than from the Pentagon's own budget. This resulted in a reduction in Intel's direct grant, according to both the company and a government official. Gelsinger commented, saying, "Strong bipartisan support for restoring American technology and manufacturing leadership is driving historic investments that are critical to the country’s long-term economic growth and national security."

Intel also chose not to proceed with a separate $11 billion low-cost government loan that had been offered in March. The company stated that the loan terms "were less favorable than anticipated for Intel’s shareholders and did not align with Intel’s long-term growth and market interests." 

By Naila Huseynova