Intel Corp. has officially qualified for up to $3.5 billion in federal grants to make semiconductors for the Pentagon, people familiar with the matter say, after the chipmaker reached a binding agreement with U.S. authorities.
The secret program, called “Secure Enclave,” is designed to boost production of sophisticated chips for military and intelligence applications. Bloomberg reported that the program spans several states and also has a production facility in Arizona.
Although Intel was always considered the favorite for the contract, there was resistance from other chipmakers, doubts in Washington about the wisdom of relying on a single company, and a dispute over funding raged in several agencies and on Capitol Hill that threatened to reduce Intel’s overall contract value.
The funding could be announced as early as next week, said the people, who asked not to be identified because the talks are confidential. It would be in addition to the possible $8.5 billion in grants and $11 billion in loans that Intel was awarded in March under the Chips and Science Lawa law that President Joe Biden signed in 2022 to revive U.S. semiconductor manufacturing and reduce dependence on Asia.
Intel is still negotiating the terms of this broader incentive package, which will support facilities in Arizona, Ohio, New Mexico and Oregon. Like other Chips Intel, the Act winner, has not yet received any money and its award is considered provisional. Funding for Secure Enclave is also coming from the Commerce Department’s Chips Act grant program – after a dispute arose earlier this year over which agency should be responsible for it – but was handled outside the usual application process.
The Secret Service, the Commerce Department and the Pentagon declined to comment. The White House did not immediately respond to a request for comment.
Intel shares rose less than 1 percent in late trading Friday after Bloomberg reported the deal. By the close, the stock had fallen 61 percent this year to $19.66.
The Secure Enclave agreement shows that the U.S. government trusts Intel to carry out the Pentagon’s plans, despite the company’s recent problems. Last month, Intel released a disastrous earnings report and revenue forecast that sent stock prices reeling and shook confidence in CEO Pat Gelsinger’s ambitious turnaround plan, which depends on factory investments around the world.
Bloomberg reported that the chipmaker is actively reassessing its manufacturing ambitions. No final decisions have been made, but Intel is more likely to delay or halt projects outside the U.S. than its flagship sites in Arizona and Ohio, people familiar with the matter previously said.
The deal also reflects the lack of other options for the Biden administration: Pentagon officials have insisted on sourcing cutting-edge semiconductors from an American company, and Intel is the only U.S. manufacturer of advanced processors. Other manufacturers include Semiconductor manufacturing in Taiwan Co. and South Korea Samsung Electronics Co., both of which are building factories on American soil with the support of the Chips Act.
Bloomberg reported that there had already been initial discussions in Washington about purchasing chips from foreign manufacturers’ US production facilities. However, these were more general procurement guidelines and were independent of the Secure Enclave program.
It’s still unclear exactly which chip models Intel will produce for the Pentagon. The Santa Clara, California-based company, which operates both a design and manufacturing business, still relies on TSMC to make some of its most advanced processors.
Intel is having difficulty convincing potential customers how NVIDIA Corp. and Advanced micro devices Inc. about its product capabilities. Bloomberg reported that Commerce Secretary Gina Raimondo encouraged both companies to consider manufacturing at the factory Intel is currently building in Ohio, but neither company currently has any plans to do so.
Intel has announced that other companies, including Microsoft Corp. are currently exploring the possibility of using the technology to manufacture their chip designs, but so far these efforts have not resulted in large orders or significant revenue.
The Pentagon can be a difficult customer for chipmakers. A recent report from the National Academies of Sciences, Engineering, and Medicine found that companies involved in a so-called Trusted Foundry program — a long-running project similar to Secure Enclave but focused on older-generation chips — often struggle to meet Department of Defense requirements or get a return on investment from those contracts.
The Pentagon was originally supposed to fund the bulk of the Secure Enclave program, but in February backed out of its $2.5 billion commitment. Lawmakers then placed the entire burden on the Commerce Department, which was responsible for the remaining $1 billion share. Bloomberg reported that the agency had at one point planned to include its new commitments for Secure Enclave in the funds already set aside for Intel, but officials ultimately decided to treat the program entirely independently of the commercial production incentives.
The drama spread to other companies. In response to the funding dispute, the Commerce Department canceled a planned commercial research and development program, forcing officials to refuse a funding application from Applied materials Inc. for a $4 billion project in Silicon Valley. Efforts to add $3 billion to the Chips Act, which would allow the Commerce Department to revive the initiative, have stalled in Congress.
(Updated with Intel shares in seventh paragraph.)
Datasheet: Stay on top of the technology business with in-depth analysis from the biggest names in the industry.
Register here.