INTC Rises From The Ash Under Trump Govt ?
Buy The Rumours…
In September 2024, there were rumours of $Qualcomm(QCOM)$ potential buy out of $Intel(INTC)$ all over the internet. (see below)
It was just the right dose of ‘scandal’ needed to push INTC out of its doldrum (yellow highlight) that saw the former chip giant sank to its lowest at $18.89 on 06 Sep 2024. (see below)
After a while when the rumours did not materialize and then, there were talks of antitrust with the takeover, the rumour fizzled as quickly as it first surfaced. (see below)
After the dust has settled, the whole picture is unfolding itself slowly and there’s more to it than meets the eyes.
The Caveat.
Intel has finally signed a contract to get $7.865 billion (revised down from $8.5 billion) in grants under the CHIPS and Science Act from the Biden government.
What’s more, INTC cannot sell its Intel Foundry manufacturing unit and must maintain a controlling stake even in case it spins it off and makes it a public company under the terms of the agreement.
Additionally, Reuters noted — the contract restricts any third party from acquiring a substantial stake in INTC.
More Details...
Intel must keep at least 50.1% ownership of Intel Foundry if it decides to spin it off into a private company.
If Intel Foundry goes public, no 3rd party can own 35% or more, not unless Intel stays the largest shareholder.
Additionally, Intel must retain control of Intel Foundry and all the other entities that receive funding under the agreement.
Finally, under the terms of the deal, the agreement limits 3rd parties from acquiring 35% or more of Intel's ownership or voting rights.
Although the terms of the agreement between Intel and the US government allow Intel to spin off Intel Foundry into:
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A private company (eg. a joint venture with an investor or a group of investors).
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A public company, Intel's wafer purchasing agreements with Intel Foundry must remain intact.
The ‘public company’s condition’ ensures that Intel's products will be built by Intel Foundry, which will ensure the financial stability of the chipmaker.
Also, all significant changes in Intel Foundry ownership or control must be aligned with the US national objectives, that is not special as all significant transactions between big American companies and foreign investors require approval from the Committee on Foreign Investment in the United States (CFIUS) anyway.
Finally, INTC must continue to invest in (a) advanced chip manufacturing and (b) semiconductor research within the US.
The company must :
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Spend at least $35 billion on R&D domestically from 2024 through 2028.
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Build, Equip, and Operate 12 fabs and Advanced packaging facilities located in Arizona, New Mexico, Ohio, and Oregon.
INTC provided no public comments on its Securities and Exchange Commission (SEC) filing.
Meanwhile, a representative from the Commerce Department stated that the government is working on control-related conditions with all recipients of direct grants, and the terms were not exclusive to Intel.
My viewpoints : (mine only)
In summary, all these restrictions underscore the delicate balance between incentivizing domestic chip production and allowing INTC, the flexibility still to make strategic decisions.
Quite certain Wall Street analysts will find the terms & conditions too strangling, curtailing possibilities to make a quick buck out of INTC.
Personally, i feel the stipulated conditions will play to INTC’s advantage in the medium to long term.
This is because:
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Controlled Foundry: Allows INTC to maintain “US” control over Intel Foundry, even in a spin-off scenario.
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Protected Market Share: Ensured market share by mandating Intel Foundry to manufacture INTC's products.
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Strategic Alignment: INTC’s commitment to US national objectives and alignment with government priorities, inversely guarantees its “survival” under the Govt’s watchful eyes.
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Significant Investment: Commit substantial investment in R&D and manufacturing facilities within the US, when executed with discipline will see that INTC remains valid & relevant.
Benefits Under Trump.
One tagline that Trump used extensively during his campaign trail was “Make America Great Again” (MAGA).
With his impending return to the oval office in less than 2 months’ time, how will the returning president work his magic on domestic semiconductor industry, that has for the longest time been dominated by non-US companies.
If he sticks to his MAGA game plan, he should prioritize domestic manufacturing, and this bodes well for INTC:
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Accelerated Subsidies: Potential for increased government support and expedited approval processes.
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Favorable Trade Policies: Reduced trade barriers and tariffs on imported semiconductors component and raw materials that Intel requires for manufacturing.
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Stronger National Security Focus: Increased emphasis on domestic chip production for critical infrastructure and military applications.
Do you foresee the Trump administration dismantling the CHIPS and Science Act OR further double down to ensure US dominance in the AI race? Should be the latter.
CEO Sudden Exit.
I supposed the surprise of the day was the sudden resignation of INTC’s CEO Pat Gelsinger. (see above)
His step down was an ultimatum by Intel’s Board of directors, after losing confidence in Pat’s stewardship to navigate INTC from its structural weakness after years of incompetent CEOs.
This non-business news has just thrown the company into a tailspin as it start its search for a replacement CEO, one that needs to have a large head in order for the hat to fit.
The rest of this week will be an interesting one for INTC.
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Do you think conditions imposed on INTC are too restrictive ?
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Do you think INTC will benefit from these T&C in the medium to longer time, ensuring it to thrive again in the not too distant future ?
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I personally have a positive outlook on Intel, in the long run
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