In a dramatic intervention to rescue America’s faltering chip manufacturing ambitions, the Trump administration has converted billions in CHIPS Act grants into a $5.7 billion equity stake in Intel (NASDAQ:INTC), giving the U.S. government a 10% ownership and significant leverage over the struggling company’s future.
The unprecedented deal, which makes the U.S. government one of Intel’s largest shareholders, is designed to prevent a potential spinoff of Intel’s deeply unprofitable foundry business, a move analysts and investors have long urged.
Intel’s deepening foundry losses, which reached a staggering $3.1 billion in the second quarter, prompted the administration-backed bailout. The terms of the deal were disclosed by Intel CFO David Zinsner at a Deutsche Bank conference, TechCrunch reported Thursday.
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According to Zinsner, the agreement not only gives the U.S. government the 10% equity stake but also includes a five-year warrant allowing it to acquire an additional 5% at $20 a share if Intel’s ownership in the foundry unit drops below 51%.
The CFO stated that he expects the warrant to expire, adding that the administration’s clear intent was for Intel to retain the unit rather than pursue a sale or spinoff. As part of the arrangement, Intel received $5.7 billion in cash from previously awarded CHIPS Act grants on Wednesday.
Despite the cash infusion, Zinsner signaled the company’s plans to seek outside investment to fuel growth in the foundry unit, which manufactures chips for other firms, CNBC reported on Thursday.
The White House has confirmed the deal remains under review, and Intel has warned of potential backlash, litigation, and heightened scrutiny.
With new CEO Lip-Bu Tan at the helm, the company has announced plans to reduce its headcount to 75,000 and has created a separate board to oversee its foundry business. Intel is actively working to secure a major customer for its 14A manufacturing process next year to justify the continued investment.
Despite surpassing second-quarter earnings expectations, Intel shares dropped 8% amid worries over its struggling division. The stock, however, has still climbed more than 24% year-to-date. The company recently raised $2 billion in funding from SoftBank (OTC:SFTBF) (OTC:SFTBY).
Price Action: INTC stock is trading lower by 1.12% to $24.65 premarket at last check Friday.
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