The nationalization of Intel?
News reports say the Trump team is looking to take an equity stake in Intel in return for funding for the company promised under the 2022 Chips Act. This is how industrial policy so often works in practice. Step one: Subsidize a struggling business. Step two: When subsidies aren't enough, nationalize it. Step three: Make sure it never fails.
Former Intel CEO Pat Gelsinger lobbied hard for the Chips Act subsidies to support his expensive bet on expanding U.S. manufacturing to compete with TSMC and Samsung. But unlike most semiconductor companies, Intel both designs and manufacturers chips and it has fallen behind in both. Its chips have been plagued by quality problems, while its enormous investment and focus on manufacturing hasn't helped its ability to compete in AI chip design with Nvidia and others.
The Biden Administration tried to ride to the rescue last year with up to $8.5 billion in direct grant funding and $11 billion in low-cost loans for Intel from the Chips Act. But as always with government largesse, it came with political strings attached. The Commerce Department press release touted in great detail Intel's plans to expand child care for its workers. Scant mention of its plans to improve manufacturing.
Most of Intel's award hasn't been disbursed because the company has slowed its expansion plans amid weak demand for its chips. Biden Commerce Secretary Gina Raimondo tried to drum up demand from tech companies but found few takers.
Intel ran a $18.8 billion loss last year and $3.8 billion during the first six months of this year. Such losses aren't financially sustainable. The company cut 15,000 jobs last year and plans to slash more than 20,000 this year. The chip-maker has also been spinning off businesses, though the Biden team restricted its ability to sell off its foundries.
Enter the Trump Administration, which may further expand the government's role in managing Intel. Mr. Trump criticized current CEO Lip-Bu Tan some weeks ago and said he should resign. Mr. Tan visited the White House, the President then praised the CEO, and word then leaked of the possible government stake.
Details of that potential investment are vague, but you can bet the feds wouldn't be passive investors. Intel's stock rallied last week on the news, perhaps because investors figure the company will now be too big to fail.
They're probably right. Once the government acquires a stake in Intel, the politicians will have an incentive to keep pouring on subsidies so they wouldn't have to admit a mistake. At the same time, the Administration's conditions for the equity investment may also make it harder for Intel to undertake needed changes to become more competitive. Politicians don't like to preside over plant closures or employee layoffs. See Renault, the French car maker, for that political lesson.
The Intel stake, if it happens, would be one more Trump Administration dive into directing private business. In return for approving Nippon Steel's acquisition of U.S. Steel, the Administration demanded a 'golden share" that gives the government a veto over plant closures and layoffs, among other things. In return for letting Nvidia and AMD export computer chips to China, the White House insisted on getting a 15% cut of the revenue.
This is corporate statism, and rarely does it end well. Political control hamstrings innovation and investment as managers look to their government overlords for approval.
See the antiquated air-traffic control system, which Canada has shown could be better managed by a private operator. Or consider Amtrak, which has struggled to end money-losing routes owing to opposition from Members of Congress in rural areas. Good luck to Intel under government influence. The company will need it.
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