US government investment in Intel looks bad for Leixlip
is getting the
Donald Trump
treatment. Two weeks ago, the president of the United States called for the resignation of
Lip-Bu Tan
, the recently appointed chief executive of America's flagship microchip maker.
'The CEO of INTEL is highly CONFLICTED and must resign, immediately. There is no other solution to this problem,' he blasted on his Truth Social account. The reason being the connections of Tan – a US citizen born in Malaysia – to China, including the sale of chip design products to a Chinese military university by one of his businesses, Cadence.
The writing was on the wall for Tan, but four days later he was invited to the White House. All talk of his resignation evaporated and was replaced by the suggestion that the US government would take a direct stake in Intel as it tries to reinvent itself, having missed out on the boom in chips to power artificial intelligence.
Depending on where you stand on Trump, the proposal is either further evidence of his business acumen and deal-making skills or more proof of his erratic temperament and general unsuitability for office.
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Few details have emerged of the proposed investment, but Intel shares – which have lost half their value over the past couple of years – are up strongly on the news.
It's hard to gauge what the consequences of the investment would be for Intel's Irish operation in Leixlip, which seems to have escaped the worst of the cost-cutting measures introduced by Tan when he took over in March (although it was reported in July that almost 200 mandatory redundancies would be implemented this year at the Leixlip plant).
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Trump administration in talks to take 10% stake in Intel
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The best guide is the deal that Trump made to allow Japan's Nippon Steel take over US Steel, the iconic American steelmaker. Trump insisted on the federal government getting a so-called golden share, which gives it the right to appoint an independent director and also a veto over some investment decisions.
These include the transfer of production and jobs outside of the US as well as 'certain decisions on closure or idling of US Steel's existing US manufacturing facilities, trade, labour and sourcing outside of the United States'.
There are cosmetic measures such as keeping the name US Steel, but the import of the agreement is clear. It is to safeguard US jobs and maintain domestic capacity in a strategic industry in the interest of national security.
It is hard to see how a significant investment in Intel – which is also being promoted on national security grounds – could come without similar strings attached, which in turn would have to militate against significant new investment in Leixlip.
If the rationale for the US government taking a significant stake in Intel is to ensure that the country boosts domestic chip-making capacity, why put money into Ireland?
The ability of Intel to resist Trump's overture – even if it wanted to – is limited. The company is haemorrhaging cash and before Tan's appointment was contemplating splitting off its chip-making arm to focus on chip design. This is the model adopted by more successful rivals who have wiped it eye on AI chips.
Tan seems committed to staying in the chip-making business although he has made this contingent on finding customers for its two latest chip-manufacturing processes known as 18A and 14A. Both processes are based in domestic plants in Oregon and Arizona, which received billions of dollars' worth of investment under the Chips Act brought in by the Biden administration.
The Act aimed to bolster domestic chip manufacturing. Leixlip has been touted as a possible site for 18A manufacturing but there does not seem to be any progress in that regard.
To date, Intel has failed to find enough third-party customers for its new manufacturing processes and remains its own biggest customer. Unless it can find more customers, its business model is simply not viable, hence the weakness of its share price over the past two years.
The presumption is that once the US government is on board as a shareholder – a 10 per cent stake worth about €10 billion has been touted – Trump will pressurise other US companies such as Apple and Qualcomm to become customers of Intel. They currently source chips from manufacturers in Japan and Taiwan.
The jump in Intel's share price and the decision by Softbank to take a 2 per cent stake in the business on Monday reflects the obvious short-term benefits of the Trump administration bullying other US firms to become its customers.
More red-blooded capitalists have warned that the US will fall into the nationalisation trap whereby a government decision to prop up an uncompetitive national champion weakens the economy long term.
But if things continue to unfold in this way, it looks likely that Intel's Leixlip plant will, at best, be left to wither on the vine as future investment is focused on boosting manufacturing capacity in the US. Alternatively, Trump could change his mind in the morning.
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