Following numerous delays and years of lobbying, the Commerce Department last month finally awarded Intel $8 billion in direct funding to expand chip manufacturing operations in Arizona, New Mexico, Ohio, and Oregon.
A week later, CEO Pat Gelsinger abruptly resigned.
The event marked a strange end to a cornerstone of the CHIPS and Science Act, one of President Joe Biden’s signature pieces of legislation.
When the CHIPS Act was passed in 2022, many predicted the legislation would be a boon to special interests at the expense of taxpayers. Those criticisms have proven prophetic. But the saga also holds lessons for CEOs who look to Washington to fix their problems instead of adapting.
Two years ago, Gelsinger took to the pages of the Wall Street Journal to plead for government support for America’s semiconductor industry, pointing out that the U.S. global share of chips manufactured had fallen from 37% in 1990 to 12%.
When the Chips Act passed with bipartisan support in August 2022, Gelsinger and his lobbyists had reason to celebrate. The legislation authorized $280 billion in total funding, and Intel stood to receive a substantial amount of the $50 billion slated for direct domestic spending.
Alas, Gelsinger soon learned that collecting money from bureaucrats is not simple. By the end of 2022, Intel had not received a penny. Negotiations continued the following year. Still no money. By October 2024, though the White House had promised Intel $8.5 billion in direct funding, the company had still received $0, and Gelsinger was publicly expressing his “frustration” with the process.
“Let’s get it finished,” Gelsinger said.
Then, in early November, Intel seemingly received a break. Following the election of Donald Trump, Commerce Secretary Gina Raimondo told Politico she intended to allocate what remained of CHIPS funds before the president-elect assumed office.
“I’d like to have really almost all of the money obligated by the time we leave,” Raimondo said.
Shelling out billions of dollars in a lame-duck spending spree hardly sounds like a prudent way to allocate capital, but the urgency to spend prior to Trump’s return likely helped get Intel’s deal over the finish line.
The problem is that Intel’s $8 billion gift almost certainly won’t “bring semiconductor supply chains back to the U.S.” as promised. And it probably won’t save Intel.
One reason Gelsinger went to Washington with his hat in hand is that Intel is a sinking company. Its market cap has plummeted from $250 billion in 2019 to $87 billion today. Its price-earnings ratio is -5.57, which means the California-based company isn’t even making a profit.
Not making a profit is fine if you’re a young, rapidly growing company. For companies founded during the Nixon administration, negative earnings are a red flag. No doubt this is one reason analysts say Intel is fighting to “stay relevant” and why rivals in the semiconductor industry say Intel “has no strategy and no CEO.”
This invites an important question: Why is the U.S. government giving billions of dollars to a floundering company?
Only the Biden administration can answer that question, and only time will tell how the government’s “investment” in Intel pans out. But so far, the CHIPS Act appears to be a case study of why politicians shouldn’t be allocating resources. In a free market, capital tends to flow toward the most productive economic purposes. Governments, on the other hand, lack the knowledge and incentives to allocate resources efficiently.
The CHIPS Act and the 2021 Infrastructure Investment and Jobs Act perfectly demonstrate this.
White House officials said these laws would help build “thousands of miles of fiber optic cable” and bring the internet to underserved communities. Yet the Wall Street Journal editorial board recently reported of the infrastructure law that “ground hasn’t been broken on a single project.” While politicians promised that the CHIPS Act would deliver tens of thousands of jobs, commentator John Stossel recently revealed these efforts were sabotaged by slews of red tape: union quotas, diversity mandates, and environmental strings.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
For all the bluster accompanying the CHIPS Act, $8 billion in funding can’t fix Intel — NVIDIA, one of Intel’s rivals, does $35 billion in revenue a quarter. Nor can it help the United States supplant Taiwan as the world leader in microchip production.
The sad truth is that Biden’s gift is corporate welfare, a crude form of central planning that will benefit a few people — lobbyists, bureaucrats who helped steer the deal, etc. — at the expense of the many. Still, Gelsinger’s poor bargain holds an important lesson for CEOs who’d like to court Washington kingmakers instead of innovating: When you dance with the devil, the devil doesn’t change; the devil changes you.
Jon Miltimore is senior editor at the American Institute for Economic Research. Follow him on Substack.