With great subsidies come great responsibilities |
Intel Corp. and other chipmakers are on the cusp of a major victory with the CHIPS and Science Act, the $52 billion bill that President Joe Biden is poised to sign as soon as Tuesday.
The legislation is designed to boost domestic chip manufacturing, and should funnel substantial sums toward the construction of Intel factories in Ohio and Arizona. But the legislative triumph—partly the product of fierce lobbying by Intel executives—comes at a difficult time for the company.
Just over a week ago, Chief Executive Officer Pat Gelsinger gave a
grim earnings report that included declining quarterly sales and a bleak outlook for the current period. Gelsinger acknowledged the need to execute better and run a tighter ship. Intel will slow hiring, reduce spending on new plants and equipment this year, and has exited peripheral businesses to preserve cash for its planned expansions.
But therein lies the conundrum. At a time when Intel is getting government subsidies to rebuild the US chip industry, it’s under pressure to cut costs and preserve profit. The company employed nearly 114,000 at the end of the last quarter—a higher level than it’s averaged over the past decade.
When Gelsinger lobbied lawmakers to pass the CHIPS bill, he touted the high-paying jobs that it would help bring. And Intel assured its own employees at an all-hands meeting last week that companywide layoffs aren’t coming. But with sales down for eight straight quarters, employees have grown increasingly concerned that the ax will fall.
The chipmaker’s sales this year will be as much as $11 billion less than it had earlier projected. And profitability has suffered. Its gross margin for the most recent quarter was 15 points shy of its historic range of more than 60%.
Intel’s Silicon Valley peers are already reacting to the weakening economy by
trimming costs. Oracle Corp. cut jobs in marketing. And tech giants like Shopify Inc., Alphabet Inc. and Apple Inc. are either slowing hiring or reducing their workforces. Notably, all of them are under less earnings pressure than Intel.
Intel’s leadership has told investors that the chip stimulus bill will prop up the company’s margins by lowering the costs of building plants in the US. And Gelsinger still has grand plans for an Intel comeback—aiming to take on Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. directly. His ambitious goals of breaking Nvidia Corp.’s hold on the graphics chip industry, building a lead in AI accelerator chips and making gains in the market for automotive silicon, have added to Intel’s headcount.
But investors are already showing they don’t have the patience to wait for this costly plan to pay off. Intel needs a rapid rebound in profit. It’s under intense pressure to cut its way to profitability while simultaneously investing in new technology and infrastructure, a task that’s made more urgent by taking government money earmarked for job creation.
And so, even as Intel celebrates the passage of the CHIPS legislation this week, the difficult work may be just beginning. —
Ian King
for yes
for no
