Intel (INTC, Financial) is navigating a challenging period as the U.S. government plans to reduce its grant from the CHIPS and Science Act to under $8 billion, down from $8.5 billion. This funding is crucial for Intel's expansive U.S. manufacturing plans, requiring over $100 million to build factories in Ohio, Arizona, and New Mexico. The decision follows a $3 billion award Intel received in September for producing advanced chips for the Department of Defense.
Several factors may have influenced this grant reduction, including Intel's ongoing struggles. The company recently delayed its Ohio plants by two years, pushing production to no earlier than 2027. Additionally, Intel's quarterly results have been lackluster, falling behind NVIDIA (NVDA, Financial) and Advanced Micro Devices (AMD, Financial) in the AI data center market. In response, Intel has implemented cost-cutting measures, including 15,000 job cuts and suspending its quarterly dividend.
Despite the grant reduction, investors are optimistic due to potential positive developments. Lattice Semiconductor (LSCC, Financial) is reportedly considering an offer for Intel’s entire Altera unit, which specializes in chips for telecom networks. Intel initially planned to sell a minority stake but may divest the entire unit for the right price. Private equity firms Bain Capital, Francisco Partners, and Silver Lake are also exploring bids. Although Altera's revenue fell 44% year-over-year to $412 million in 3Q23, a sale could still provide a significant capital boost for Intel.
Additionally, Intel announced plans to sell and lease back its Folsom, California site, home to about 5,000 employees. This move aims to generate cash and save money through its real estate assets while keeping the facility fully operational.
Overall, while the federal grant reduction is a setback, Intel's strategic moves, including potential asset sales and real estate optimization, may help generate and free up capital for its manufacturing expansion.
