The US semiconductor industry, despite significant challenges in 2023, including a downturn and supply chain issues exacerbated by the COVID-19 pandemic, is showing signs of recovery. Nevertheless, this is not the case for Intel.
Intel Corporation, which was previously a leader in the industry, is currently experiencing challenging circumstances. Taiwan Semiconductor Manufacturing Co. (TSMC) has surpassed Intel in producing the most advanced processors over the past three years. TSMC is a supplier of chips to Intel’s competitors, such as Nvidia.
Established in 1968, Intel laid the groundwork for Silicon Valley’s decades-long global dominance in the microprocessor market. Nevertheless, its market capitalization is currently over 30 times lower than that of Nvidia, a frontrunner in the production of AI chips.
After accruing $1.6 billion in losses in Q2, Intel CEO Pat Gelsinger recently informed investors and employees that the company necessitates a significant amount of restructuring to reduce costs. By 2025, Intel intends to reduce its capital expenditures to $21.5 billion and lay off 15,000 employees, representing a 17% decrease from this year.
Intel’s market capitalization has plummeted below $100 billion amid these losses, in contrast to Nvidia’s $3 trillion.
The company has initiated the global sale of its assets. For example, Reuters reported that Intel may abandon its intention to construct a $32 billion semiconductor manufacturing facility in Germany, despite receiving €10 billion from Berlin and €2 billion from Warsaw. This would be an additional setback for the economy of Europe, which is already in the process of deindustrialization.
Additionally, Bloomberg reported that Intel plans to sell its semiconductor manufacturing facilities, which other chip manufacturers use. Rumors suggest that TSMC might acquire this facility.
Holger Mueller, an analyst at Constellation Research Inc., compared Intel’s current challenges to the Ottoman Empire’s decline, referring to it as “the sick man of Silicon Valley.” He asserted that Intel finds itself trapped in a detrimental cycle, unable to allocate resources to expand its product portfolio, leading to a decline in its earnings.
Intel’s problems symbolize the failure of President Biden’s ambitious plans to reestablish US leadership in the semiconductor industry.
The US Department of Commerce awarded Intel loans of $8.5 billion and $11 billion in March 2024 for the construction and expansion of semiconductor facilities in Ohio, Arizona, New Mexico, and Oregon.
President Joe Biden personally visited Intel’s Arizona plant to announce funding from the CHIPS and Science Act of 2022. The funding is anticipated to generate 10,000 manufacturing jobs and 20,000 construction jobs across four facilities, in addition to tens of thousands of indirect jobs.
Nevertheless, obstacles arose rapidly.
Promising to be the state’s most significant economic development initiative, the Ohio facility located near Columbus encountered delays. Despite the original launch schedule for 2025, Intel has announced that operations will not commence until 2027 or 2028. In the interim, federal and state officials had committed billions of dollars in incentives to facilitate its construction.
CEO Pat Gelsinger resigned on December 1.
Although competitors such as Nvidia are relatively successful, they primarily depend on semiconductors produced by Taiwan’s TSMC, which has resulted in the United States’ failure to achieve its goal of dominating chip production.
The United States’ proportion of global semiconductor production has decreased from 40% in 1990 to a mere 12% in 2020. In order to reverse this trend, it is necessary to not only build factories but also to train a skilled workforce. An estimated 146,000 positions, including 50,000 engineering roles, may remain unfilled by 2030, despite a projected 33% increase in semiconductor jobs.
The CHIPS Act allocates substantial funds to support the domestic semiconductor sector. Companies such as TSMC, Intel, and Samsung have received billions in federal investments to construct or expand US-based facilities since its ratification in August 2022. The intention is to generate more than 115,000 jobs.
Nevertheless, these plants are unable to operate at their maximum potential in the absence of an adequate number of skilled technicians and engineers. According to Deloitte, staffing is the most significant challenge for nearly 90% of technology executives.
As of now, the CHIPS Act has allocated more than $32 billion to 26 initiatives, 16 states, and 17 companies. The US Department of Commerce has not yet disbursed any funds.
Many semiconductor companies in the United States have transitioned to a fabless model, which involves outsourcing manufacturing to East Asia, as a result of the high costs of production. In this region, Taiwan and China are the primary locations for approximately 80% of the world’s semiconductor production.
Major US technology companies like Apple, Google, and Amazon source nearly 90% of their semiconductors from Taiwan’s TSMC.
Outsourcing semiconductor production from the United States has been a longstanding practice. “Now, you’re trying to bring it back,” says Clay Neighle, senior director of the National Institute for Innovation in Competency Assurance (NIICA), stressing the importance of partnerships between educators and employers and training programs.
The failure of Biden’s semiconductor revival plans has left these noble intentions unfulfilled, undermining the United States’ leadership in chip manufacturing and the Pentagon’s aspirations for advanced AI-equipped weaponry.