Breakingviews - Money solves less than half of Intel's problems
Intel has spent plenty of money trying to compete with Taiwan Semiconductor Manufacturing (2330.TW), opens new tab, better known as TSMC. Over the past three years, it notched nearly $75 billion in capital expenditures as it tried to revitalize its manufacturing, ultimately with a view to letting its plants serve former rivals. Progress has been slow; deadlines have slipped; results shown to prospective customers have disappointed, Reuters reported.
This is a very different challenge from, say, kick-starting a rare earth supply chain in the United States. Last month, the Department of Defense took a big stake in MP Materials (MP.N), opens new tab, which runs the country's only minerals-to-magnets operation. The unusual arrangement will also see the government guarantee a floor price for the company's refined materials, shielding it from fierce price competition from abroad.
Intel does not face a price war, though: it is in a battle for technological dominance. What matters is raw scale at the bleeding edge of silicon development. Stuck in the PC era, prior CEO Paul Otellini fumbled the chance to move into the much larger smartphone market. Apple's (AAPL.O), opens new tab partnership with TSMC has reached a level of trust that allows the iPhone maker to guarantee enormous orders for the chips, years in advance.
Simply giving Intel money cannot substitute for this dynamic. That's not to say it doesn't help: analysts had expected the company's pace of capital investment to fall by roughly $10 billion between 2024 and 2026, according to Visible Alpha. The White House might also be able to exert enough pressure to mend a rift between CEO Lip-Bu Tan and his board about whether to spin out its manufacturing business, as reported, opens new tab by the Wall Street Journal.
Intel needs big customers like Apple or Nvidia (NVDA.O), opens new tab or Qualcomm (QCOM.O), opens new tab. They cannot yet make the leap without Tan delivering a sophisticated enough product. The risk is that, in its attempts to reshape the market, the Trump administration tries to force the issue with awkward kludges that stymie everyone. The president's call to have Tan fired illustrates how he is already trying to exert control. U.S. dominance of the tech sector is not a given. The balance can be easily upset.
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