Intel also recently received a $3 billion US government contract to expand its semiconductor manufacturing capacity
Intel (NASDAQ:INTC) shares rose moderately Tuesday morning as traders learned that the U.S. Department of Commerce will provide the chipmaker with up to $7.86 billion in CHIPS and Science Act funding.
A stipulation is that Intel will use the funds to build domestic chipmaking factories in Arizona, New Mexico, Ohio and Oregon.
Furthermore, according to Barron’s reporting, Intel has agreed not to enact any share repurchases for five years, with undisclosed exceptions.
Billions in government support for Intel
Intel also recently received a $3 billion contract via the Secure Enclave program to expand its semiconductor manufacturing capacity for the U.S. government.
In addition, Intel will claim an Investment Tax Credit from the U.S. Treasury Department, valued at up to 25% of qualified investments of more than $100 billion.
Supporters of the large-scale funding for domestic chipmakers like Intel will typically cite the nation’s economic and security interests.
In that vein, U.S. Secretary of Commerce Gina Raimondo suggested that Intel, with assistance from the CHIPS Act funding, “is expected to play an important role in the revitalization of the U.S. semiconductor industry”.
Analysis: Some strings attached
Intel isn’t free to deploy the federal funding however it sees fit. Rather, the firm is committed to using the CHIPS Act funds to build chipmaking facilities on American soil, particularly in Arizona, New Mexico, Ohio, and Oregon.
Moreover, Intel has “agreed not to conduct stock buybacks for five years, with some undisclosed exceptions”. Interestingly, Intel did not mention this stipulation in its Tuesday morning press release.
Still, the five-year moratorium on share repurchases might not be a major issue since Intel already paused its buybacks. Besides, Intel’s focus in 2025 and 2026 will probably be the development of its chipmaking-foundry operations, rather than returning cash to the shareholders.
Thus, even with some strings attached, the massive funding packages are likely a win-win for Intel as the company partners with the U.S. government to establish multiple domestic chipmaking sites.
