President Donald Trump’s haters have spent a decade accusing him of being a fascist. Yet, his plan to unilaterally extract a 10% equity stake in moribund chipmaker Intel is now about as close to that notion as anything he has tried during his two White House terms.
The White House has defended the unprecedented move, at least in part, by warning about the very real national security threat posed by our reliance on the Taiwan Semiconductor Manufacturing Company, which produces the lion’s share of the planet’s chipmaking. However, the solution would cause more problems than it solves, subordinating the U.S. economy’s fastest-growing sector from capitalism to corporatism. And crucially, the federal government simply doesn’t have the dough to save Intel from itself.
Once upon a time, the California-based Intel dominated every other company in the world in designing and manufacturing chips. Of the 20 or so major chip manufacturers that thrived when the dot-com bubble burst, only three were manufacturing at scale by 2012: Intel, Samsung, and TSMC.
Thanks to its partnership with Microsoft, resulting in near total control of PC chips throughout the 1990s, Intel got cocky. Intel threatened PC manufacturers with supply chain retaliation and lawsuits to ice a competitor, Advanced Micro Devices, out of the chip manufacturing market. AMD decided to vertically integrate away from manufacturing to focus solely on designing chips, the same way Nvidia has since its founding in 1993. Theoretically, Intel should have cemented its monopoly then and there.
But Intel failed to foresee the explosion of the smartphone industry in the 2010s and then the artificial intelligence revolution a decade later. Furthermore, these “fabless” chip designers, such as companies like AMD that Intel bullied out of the chip manufacturing market, found their perfect partner in TSMC, which focused only on chip manufacturing.
From January 2020 through today, Intel’s market capitalization has more than halved, while TSMC’s has more than quadrupled.
America’s supremacy in chip designing is uncontested. It’s our actual manufacturing that lags. If TSMC were in Toronto or Toulouse, this wouldn’t necessarily be a problem. But considering that the Chinese Communist Party is itching to invade Taiwan, it is indeed a legitimate national security threat that some 60% of all chips, and more than 90% of the planet’s advanced chips, are physically manufactured on an island fewer than 100 miles from mainland China.
So, Trump is right to consider friendshoring the semiconductor supply chain a priority. The problem is his proposed solution.
For starters, Intel’s own leadership has expressed very little urgency in improving its manufacturing division. And when it has taken advantage of the CHIPS Act, enacted by Congress and former President Joe Biden, to theoretically do so, it hasn’t done so well at all.
Over a year ago, the Biden administration gifted Intel $8 billion in CHIPS subsidies for plants in multiple states. But right after Trump took office (again), Intel announced that its blockbuster Ohio development, “Silicon Heartland,” would postpone completion of its first development stage from 2025 to 2030.
Considering that Intel posted a -35% net profit margin last year, its lack of urgency in expanding chip manufacturing — the division with the market capacity for it to be much more competitive than chip design — should be best interpreted by the Trump administration as a pathetic plea for further federal bailout. But worse, fabless chip firms interpret Intel’s lack of manufacturing initiative as a sign that they must continue to rely on TSMC.
Intel is currently not very good at making chips, but it’s arguably worse at designing them. Consider that its foundry division, that is, the vertically integrated manufacturing that could source designs from outside fabless clients, went from contributing 1% of the company’s total revenue in 2022 to more than a third in the first quarter of this year.
As a matter of pure pragmatism, Trump could either ask Congress to reverse the CHIPS Act to recoup the billions not yet outstanding or use this supposed 10% stake to cajole Intel into selling off its $100 billion design division and double down on its manufacturing. Letting Intel keep billions in taxpayer funds to continue to waste them away on its current failed business model is the worst of both worlds.
WHAT IS ’CAUSE’? AND WHY CAN’T THE PRESIDENT FIRE LISA COOK?
Trump hasn’t put all of his eggs in the Intel basket, of course. He has wisely courted TSMC to (voluntarily) invest $100 billion in its Arizona-based chip manufacturing. But in an Economist profile on the Arizona expansion, TSMC CFO Wendell Huang said he was surprised by America’s onerous and lengthy permitting process compared to that of Taiwan. Regulatory and input costs will make chips made at TSMC’s Arizona plant 20% more expensive than those made in Taiwan.
Sometimes, the best thing the government can do is get out of the way.