Delays in production starts by top chipmakers supporting the U.S. CHIPS Act, such as Intel and Samsung, are signs that the U.S. government stimulus measure may not be meeting expectations.

This week, Intel said it will slow the opening of its latest facilities in Europe by about two years.

“We will pause our projects in Poland and Germany by approximately two years based on anticipated market demand,” Intel CEO Pat Gelsinger said in a Sept. 16 announcement. He pledged to keep U.S. investments related to the CHIPS Act in Arizona, Oregon, New Mexico and Ohio on track.

Still, at Intel’s $10 billion new Ohio facility that’s potentially the site for multiple chip fabs, the company has not yet installed any production equipment, the most expensive part of the buildout, according to Paul Triolo, who advises global tech clients at Washington, D.C.–based Albright Stonebridge Group.

“This suggests that Intel’s entire U.S. commitment under the CHIPS Act could be in jeopardy, as the company considers splitting the design and manufacturing parts of the company,” Triolo told EE Times. “Efforts by Commerce Secretary Gina Raimondo to appeal to large U.S. design companies like Nvidia and Qualcomm to use Intel’s U.S. facilities, even before they are built out and running proven advanced processes, suggests that some panic has set in in the CHIPS Program Office given the huge commitment of funding to Intel.”

Intel’s initial $20 billion investment in Ohio could grow to as much as $100 billion, Gelsinger said more than two years ago.

Cash crunch

Intel, which analysts say is in a cash crunch, this week took a “lifeline” from the U.S. government that includes $3 billion and a reported sales pitch to potential chip-foundry customers.

On Sept. 16, Intel announced it has been awarded up to $3 billion in direct funding under the CHIPS Act for the U.S. government’s Secure Enclave program, aimed at creating a secure supply of leading-edge semiconductors for the nation’s military. The announcement came days after CNBC reported that Commerce Secretary Raimondo, who oversees the CHIPS Act program, met Gelsinger and separately urged companies such as Apple and Nvidia to become Intel customers.

Intel and the Department of Commerce (DoC) declined to comment.

In March, the U.S. government conditionally granted Intel nearly $20 billion in loans and subsidies, potentially the largest incentive for a single chipmaker under the CHIPS Act, which is aimed at reviving the shrinking U.S. semiconductor industry.

More recently, Intel has cut jobs and capital expenditures as its business sours. The company is paring 15% of its headcount and slashing 2024 capex for new fab capacity by more than 20% to a range of $25 billion and $27 billion, reflecting expectations for softer second-half demand.

Samsung has slowed the ramp of its new fab in Taylor, Texas, despite the DoC conditionally awarding the company a more than $6 billion stimulus package under the CHIPS Act.

During a quarterly results announcement on April 30, Samsung said that it delayed the production start for the Taylor fab project from the second half of 2024 to “maybe 2026.” In 2021, Samsung said it would invest $17 billion in the project.

“Samsung’s apparent struggles meeting its U.S. CHIPS Act commitments are really part of a larger story,” TechInsights vice chair Dan Hutcheson said. “This year’s semiconductor market is a tale of two stories. There’s AI and everything else. A few products and markets are doing spectacularly. The larger part of the semiconductor industry is in a slump.”

Commitments made by the chipmakers don’t match current market conditions, he added.

“Meanwhile, funding holdups are doing the opposite of what the CHIPS Act was supposed to do: They’re strangling chip companies,” Hutcheson said.

The DoC noted to EE Times that subsidies for Intel, Samsung and other CHIPS Act winners will be awarded on the condition that the companies can meet a series of unspecified milestones.

CHIPS funding will be disbursed in tranches tied to project milestones in connection with capital expenditures, workforce development and operational costs to ensure that companies make progress on their projects, the DoC said in a February 2023 statement. In addition, if a project does not start and finish by the target dates specified in an award, the CHIPS Program Office can progressively recover up to the full amount of the award, the statement said.

Military work

Intel’s production for the U.S. military won’t be enough to demonstrate its ability to provide foundry services to a wide range of customers, according to Hutcheson.

“The problem for all involved is that they can’t drive yield and reliability without the volumes of PC production,” he said, noting that Intel’s mainstay PC chips have up until now been enough to keep its fabs running. “There are just too few learning cycles in the low volumes of military production.”

Intel’s problems go beyond the ability of the U.S. government to provide funding via programs such as Secure Enclave or the CHIPS Act, Triolo said.

There are two major factors at play,” he told EE Times. “First, Intel’s manufacturing side, specifically Intel Foundry, is having trouble attracting large customers to diversify away from leaders Taiwan Semiconductor Manufacturing Co. [TSMC] and Samsung. This is a tough situation, as the costs now of having two primary suppliers for a major product like an advanced Nvidia GPU are very high.”

Intel’s design arm prefers to use TSMC for advanced designs, given TSMC’s proven track record, Triolo noted, adding that Intel’s manufacturing side has had difficulty overcoming issues at advanced nodes.

At the same time, Intel’s sales from China, at times worth as much as a quarter of the company’s overall revenue, have steadily eroded over the past five years because of U.S. export controls, Triolo said. “This is significant, as customers such as [China’s] Huawei were major purchasers of Intel commodity semiconductors and could have also been customers for Intel’s foundry services.”

It’s fair to say the U.S. government has thrown a lifeline to Intel with the Secure Enclave subsidy, Hutcheson said.

“The issue is very urgent,” he said. “Otherwise, Intel will be cutting muscle and bone.”

Intel needs cash because it is still years away from splitting off its unprofitable foundry unit as an independent entity, according to analysts who spoke to EE Times. Other than its parent company, Intel Foundry has no significant customers, the analysts said.

“They’re looking for all sorts of cash because they’re burning tons of cash,” Bernstein Research senior analyst Stacy Rasgon told EE Times. “He [Pat Gelsinger] needed to get the [CHIPS Act] subsidies.”

The U.S. has made Intel a key part of its strategy to create a military supply chain that’s decoupled from strategic adversaries such as China. Two years ago, Intel Foundry aimed to make the U.S. military its top customer.

Since then, Intel Foundry has aimed for far bigger customers.

This week, Intel said Amazon Web Services (AWS) will expand their relationship. Intel Foundry will produce an AI fabric chip for AWS on its Intel 18A process node that’s expected to start production in 2025.

“More broadly, we expect to have deep engagement with AWS on additional designs spanning Intel 18A, Intel 18AP and Intel 14A,” Gelsinger said in his announcement.

That news may be an important win for Intel.

“The AWS deal was a big win, as it validated 18A as a leading-edge process,” Hutcheson said.

By: DocMemory
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