Biden needs a win from Intel. Can the company deliver?

President Joe Biden last week unleashed $8.5 billion of federal support on a single company, Intel — the biggest check his administration plans to write from the CHIPS and Science Act, a signature economic-growth policy. In an announcement at Intel’s chipmaking complex in Arizona, he embraced the company as a crown jewel of the American “future economy.”

The investment is smart politics, letting Biden take credit for thousands of jobs both created and promised in swing states Arizona and Ohio, and giving him a public victory lap at a time of dismal ratings.

But it also ties Biden’s legacy to a tech giant with significant problems of its own — one in the middle of an attempted recovery after falling behind in a crucial global competition.

Biden is “looking for wins,” said Sarah Kreps, a political scientist who directs Cornell University’s Tech Policy Institute. “The administration is trying to use this Intel grant as a success story.”

That success story is far from certain. Intel was once the world’s undisputed leader in advanced computer chips. It got lapped by international players like Taiwan Semiconductor Manufacturing Company and South Korea’s Samsung, which now dominate the $527 billion global semiconductor market.

Intel’s CEO, Pat Gelsinger, has conceded that “clearly Intel stumbled” as it failed to seize opportunities in booming global markets. But he also proved hugely influential in steering federal money toward his own industry, and Intel’s reboot — now in its third year — has captured the White House’s imagination.

As the only homegrown company making the leading-edge chips that process data for the most advanced high-tech applications, Intel looked like the default choice for a monster payout once the CHIPS Act passed in 2022.

“Everybody knew from the outset that Intel would play a starring role in the CHIPS Act,” said Doug Calidas, a fellow at Harvard University’s Belfer Center for Science and International Affairs and a former Democratic Hill staffer who observed the bill’s negotiations. “You can’t get around it.”

To deliver on the jobs and political upside, Intel is now going to have to deliver on its ambitious corporate promises. It’s no sure feat — the company lost ground as rivals became more cutting-edge and central to the global tech industry.

Kreps predicts the new U.S. semiconductor policy overall will be an “uphill battle,” and points out that Biden and Congress are trying to push against big economic forces — lower costs, a talent gap, and years of manufacturing knowhow that have largely moved overseas.

“Those differentials between manufacturing in the U.S. and abroad are high,” she said, “and it's not clear that even the CHIPS Act can cover those differences.”

Betting on a comeback story

Gelsinger has promised to plow $100 billion into new facilities across the country, including what Intel envisions will be the world’s biggest AI chip factory in Ohio. A huge amount of that is enabled by federal support — on top of the $8.5 billion in direct subsidies, the company is also in line for $11 billion in loans and expects more than $25 billion in tax breaks.

The CEO pledged to overtake Samsung as the world’s second-largest contract chipmaker behind TSMC by 2030, a target that neatly dovetails with Biden’s goal of driving the U.S. to produce 20 percent of the world’s leading-edge semiconductors by the same year.

"Intel has been competing successfully in global markets for more than fifty years and we’re confident in our ability to continue doing so," company spokesperson William Moss said in an emailed statement for this article. "We expect to return to process technology leadership by 2025."

If it works, the plan would amount to a kind of restoration. Intel’s decades-long streak at the top of chipmaking was entwined with the rise of Silicon Valley itself, and its founders were deans of the high-tech industry. That changed rapidly in recent years, as aggressive investments by foreign governments, as well as cheaper labor costs and borrowed American business experience, vaulted Asian chipmakers to the forefront.

Today, none of the world’s most advanced chips are produced in the U.S. Intel does the majority of its advanced manufacturing and R&D domestically, but its fastest chips trail those produced in Taiwan. TSMC is building plants in Arizona but hasn’t publicly committed to bringing its most sophisticated technology to the U.S. — though that could change, with it expecting a government CHIPS award of its own.

That overseas shift caused more than lost jobs: It has become a national security worry. Given the central importance of microchips to the entire tech sector, the geopolitical risks of TSMC’s Taiwanese fabrication plants, or fabs — located in an earthquake-prone region and vulnerable to potential military escalations with China across the strait — is a growing concern for both corporate clients and government customers like the Department of Defense.

“They need an alternate,” semiconductor analyst and CEO Ben Bajarin at Creative Strategies told POLITICO. “This is a too-big-to-fail situation with Intel. The government needs this to be successful.”

As the Commerce Department begins allocating money from the CHIPS Act, designed to re-shore the industry, Intel has presented officials with a holistic and credible plan to expand across four states, said Adrienne Elrod, former government affairs director for the department’s CHIPS Program Office. It includes the AI endeavor in Ohio, high volume production of leading-edge logic chips in Arizona, investments in advanced chip packaging in New Mexico and an Oregon research hub furthering Intel’s future developments.

“They really showed how these four different entities in four different states work hand in hand to allow us to not only create more leading-edge chips here at home but also stay on top of the innovation standpoint for these chips here,” she said in an interview.

For now, many of those plans are only on paper. Intel’s latest manufacturing process technology — which Gelsinger said he’s “bet the whole company on” — is debuting later this year and will be used for the first time to mass-produce chips in Arizona. The launch of its Ohio fab is facing a yearslong delay — an issue that Gelsinger recently explained as due to “market conditions.”

There have been signs of progress in its turnaround. Intel publicized a signed deal to make custom chips for Microsoft last month and says there are four large customers onboard for its next manufacturing process, which it promises will take the technological lead back from TSMC. Gelsinger is also openly courting Sam Altman’s OpenAI to source chips from its new federally-funded fabs.

The Microsoft deal is “a vote of confidence by a very big tech company” and “early signs are promising,” said Chris Miller, author of “Chip War” and an assistant professor of international history at Tufts University.

But to gain traction among new customers as a foundry — a firm other companies trust to make their chip designs — Intel needs to expand even further, and it wants the federal money to bridge the gap between the capital being spent and the revenue that hasn’t come in yet.

“It has to invest a lot in the short run to build these very, very expensive facilities, and then the customers will only come once the factories are built, more or less,” he said. “Intel’s got a really long way to go.”

‘America’s championship company’

To critics, the CHIPS Act looked like a government playing favorites, lavishing unneeded subsidies on a profitable industry. Though the administration has insisted it makes decisions by the books and will protect taxpayer interests, the Intel payout evokes other companies that enjoy special ties with Washington, such as the troubled aircraft giant Boeing, which benefits from supply-chain loan guarantees and a close relationship with regulators.

Dorothy Robyn, a former top economic adviser to President Bill Clinton who has defended Boeing against this kind of critique, says the approaches are significantly different, and called Biden’s investments in Intel novel.

“Intel comes closer to what I would call industrial policy,” she said, arguing Boeing never got direct government subsidies to build commercial planes. “He's embracing industrial policy in a way that Democrats have been wary of doing in the past, and we'll see how that goes over.”

Past attempts at industrial policy put federal funds into saving “dying sectors” like car and steel manufacturing in the Rust Belt, said Robyn. Historically, that invited criticism that the government was “picking winners and losers,” while CHIPS has instead drawn praise from lawmakers for backing a future-facing industry.

Large as the grant to Intel may be, said Miller, the “Chip War” author, competing countries are funneling far more into their chipmakers: “China is in the midst of a very expensive but focused campaign to make itself less reliant on imported chips. It's spending roughly one CHIPS Act per year and has been for the last decade.”

"We see the CHIPS Act as important to leveling the playing field," said Intel's Moss. "The combination of public and private investment is what will drive long-term U.S. economic and technological competitiveness, but there is a great deal to build on here."

Though Intel will be the largest CHIPS grant recipient, the Commerce Department expects to award around a dozen other companies, some of which might be nearly as large. That includes other advanced chipmakers: the U.S. aims to establish at least two clusters of semiconductor fabs by 2030, each anchored by one or more leading-edge companies. Its CHIPS office is negotiating with applicants like TSMC, Samsung and Micron as well.

All awards from the CHIPS incentives program have been preliminary, and grantees will have to pass due diligence and reach certain performance-tied milestones to get the funding.

“This is a huge investment in America's championship company Intel, and we’re committed to their success,” Commerce Secretary Gina Raimondo said to reporters last week on a call about the grant.

Still, early uncertainties surround Intel’s status as a standard bearer. A senior administration official told reporters that Intel would “absolutely not” be able to make its investments without the government money. Already, the need for more money is looming: Both Raimondo and Gelsinger have begun arguing for a “CHIPS 2.0.”

Michael Strain, an economist at the conservative American Enterprise Institute, said that while Biden “is playing his cards correctly” in the political sense by embedding Intel into his Arizona reelection campaign, the company could end up as a success story - or an albatross.

“There's a risk that Intel comes to the administration and says, ‘hey this is more expensive than we thought it was, and the cost benefit to us doesn't make sense unless we have some more money from the government,’ said Strain. He added, “That becomes a political liability for the president rather than a political asset.”

Phelim Kine and Brendan Bordelon contributed to this report.