The president of the United States, Donald Trump, is injecting almost 9 billion dollars in Intel in exchange for a 9.9% participation in capital.
However, the money – which the chips manufacturer, in difficulties, had to receive anyway by a Federal Financing Law – will not be enough for its chip manufacturing business for contract to prosper, according to analysts.
What Intel needs are external clients for its manufacturing process of avant -garde 14a, a difficult task at least in the short term. The executive director, Lip Bu Tan, who assumed the position in March, warned last month that the company could be forced to leave the chips smelting business if it does not get large customers.
“From now on, our investment in Intel 14A will be based on the confirmed commitments of customers,” he said.
Kinngai Chan, an analysis of Summit Insights, stressed the economic logic of the message of Tan: “Intel must ensure sufficient volume of customers to move on to the production of their 18A and 14A nodes, so that its foundry division is economically viable.”
“We do not believe that any government investment changes the fate of its foundry division if it fails to attract enough customers,” he added. The chips manufacturer, which once was synonymous with American skill in the sector, has stumbled for years of management errors, giving the leadership to Taiwanese TSMC and losing the race for artificial intelligence chips against Nvidia.
In this context, Intel must demonstrate its ability to make advanced chips that attract customers. Reuters reported that Intel’s current process – less than the 14th – presents performance problems, that is, the proportion of produced chips that meet the standards to reach the market.
The great foundations, such as TSMC, usually absorb the cost of low yields in the early stages of development when they work with clients such as Apple. For Intel, which has registered net losses for six consecutive quarters, that strategy is difficult without compromising profitability.
“If the performance is bad, new clients will not use Intel Foundry, so it will not really solve the technical aspect of the company,” said Ryuta Makino, an analyst at Gabelli Funds, who has Intel actions.
Makino, who believes that Intel may eventually produce chips with optimal yields, considers that the agreement is a negative net result for the company compared to receiving financing under the Chips Law, as provided during the Biden administration. “This is not free money,” he warned.
The Federal Government will not have representation in the Board of Directors of Intel and has agreed to vote with the company in matters that require shareholders’ approval, although this agreement includes “limited exceptions”. In addition, the Government will obtain Intel’s actions with a 17.5% discount compared to the closing price of Friday.
Participation will make the US government the largest shareholder of Intel, although neither Trump nor the company revealed when the transaction will be completed.
Intel’s shares rose 5.5% on Friday after the news was known, but 1% fell in the session after the opening of the market, when the terms of the agreement were detailed. So far this year, they accumulate a gain of 23%, driven by the announcement of such an important employment cuts.
Find: Trump states that Intel will yield 10% to the US, becoming the third largest shareholder
Intel; between impulse to the company and governance
The investment, the last extraordinary intervention of the White House in the business sector, is aligned with the target of Trump to boost national production and recover jobs. The movement occurs after the president’s comments at the beginning of the month, when he described so “very conflictive” for his links with Chinese companies and requested his resignation, although he later changed his mind.
Some analysts point out that Intel could benefit from government support, even for factories construction. Intel has said that he is investing more than 100 billion dollars to expand his plants in the United States and hopes to start the production of large volume chips at the end of this year in his Arizona factory.
“Having access to capital and a new partial owner who wants to see the company triumph are two key factors,” said Peter Tuz, president of Chase Investment Counsel.
The investment of 8,900 million dollars of the government adds to the 2,200 million in subsidies already received by Intel, raising the total of 11 thousand 100 million, according to a statement from the company. The agreement also grants the Government a warrant Five years, at $ 20 per share, for an additional 5% of Intel’s shares, which can be exercised if the company stops controlling at least 51% of its foundry business.
For some, government participation could be interpreted as a sign that Intel is “too great to break.” For others, he raises doubts about the governance and the risk that the government limits the company’s ability to act on the best interest of its shareholders, Andy Li, a senior analyst of Creditsights warned.
“The company is not receiving additional government financing … that indicates a lower interest of the Government to continue providing support,” he added.
The investment adds to the injection of 2 billion dollars of softbank announced in the early week.
“This is a great agreement for the United States and also for Intel. Manufacturing semiconductors and avant -garde chips, which is what Intel does, is essential for the future of our nation,” Trump said Friday.
With Reuters information
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