According to Bloomberg, the Pentagon has abandoned its plan to allocate $2.5 billion towards a grant for semiconductor giant Intel (NASDAQ: INTC), as reported by individuals familiar with the matter.
This decision now shifts the responsibility to the U.S. Commerce Department, tasked with distributing funds from the U.S. CHIPs and Science Act, to cover the deficit, Bloomberg noted. Initially, the Commerce Department was only slated to provide $1 billion of the $3.5 billion earmarked for Intel for advanced defense and intelligence-related semiconductors.
The agreement aims to establish Intel as the exclusive supplier for processors used in military and intelligence applications, potentially leading to a Secure Enclave within Intel’s chip factory. With the reported withdrawal of the Pentagon, the allocation of funds under the CHIPs Act for Intel and other entities might undergo changes.
Last month, Intel’s Chief Executive Pat Gelsinger mentioned that the company anticipated receiving an award from the U.S. government “very soon,” without specifying a precise timeline.
On Tuesday, Intel’s shares climbed by 0.8%, but following the report, they dipped by 0.5% during after-hours trading.
Intel, headquartered in Santa Clara, California, did not immediately respond to a request for comment from Seeking Alpha.
The CHIPs Act, signed into law by President Biden in August 2022, aims to fortify the economy and bolster national security by encouraging semiconductor manufacturing within the U.S.
Presently, Taiwan Semiconductor (TSM) dominates the semiconductor manufacturing industry, commanding 59% of the sector’s revenue as of the third quarter of 2023, as per Counterpoint Research data.
Since the enactment of the legislation nearly 18 months ago, the Biden administration has been sluggish in disbursing funds to companies that have applied for grants.
BAE Systems (OTCPK: BAESY) became the first recipient of CHIPs Act funding, securing $35 million in December 2023 to modernize its microelectronics center in Nashua, New Hampshire.
Microchip Technology (MCHP) received $162 million in January, with $90 million allocated to enhance its plant in Colorado Springs, Colorado, and an additional $72 million to expand a factory in Gresham, Oregon.
GlobalFoundries (GFS), a competitor to Intel and Taiwan Semiconductor in the chip manufacturing sector, received $1.5 billion last month to bolster its existing fab in Malta, New York.
