Intel just got $5.7B from the US government — but Trump could block foundry spinoff

Despite Intel and the US government working out the details of their landmark deal, billions of dollars have already changed hands. Intel Finance Chief David Zinsner shared that the US government recently paid $5.7 billion to Intel.

Last week, Intel and the US government reached an agreement that sees the government invest $8.9 billion into the chipmaker. As part of the deal, the government will hold a 9.9% stake in Intel.

The exact terms of the deal are still being determined, according to White House Press Secretary Karoline Leavitt. She said on Thursday that details are "still being ironed out by the Department of Commerce. The t's are still being crossed. The i's are still being dotted. These — you know — it's very much still under discussion."

With deals of this magnitude, it's normal for two sides to announce an agreement and then sort the exact details in writing.

One part of the deal is a five-year warrant that allows the government to obtain an additional 5% of Intel at $20 per share if Intel gives up control of its foundry business. That outcome is unlikely, according to Zinsner:

"I don’t think there’s a high likelihood that we would take our stake below the 50 percent, so ultimately I would expect [the warrant] to expire. I think from the government’s perspective, they were aligned with that: they didn’t want to see us take the business and spin it off or sell it to somebody.”

The Financial Times reported on Zinsner's comments, which were made at a Deutsche Bank conference last week.

Intel Foundry failings

The structure of the deal between Intel and the US government encourages the former to retain control of its manufacturing business. Intel Foundry Services is part of Intel's IDM 2.0 vision. The company began down the path of making chips for other companies in 2021, though the strategy has not proven profitable.

Intel Foundry Services lost $13 billion last year. Former Intel CEO Pat Gelsinger, who was instrumental in Intel's push for third-party chip manufacturing, abruptly left the company last year.

Gelsinger's goal was to have Intel compete with the likes of TSMC and Samsung. Intel Foundry Services was not expected to break even until 2027. Gelsinger's comments following his departure suggest confidence Intel would have righted the ship if given more time.

"The decision to step down from Intel was an extremely difficult one," said Gelsinger.

"I wanted to finish what I started, but as you know, I was not given the opportunity" (quote translated from Japanese text originally shared by PC Watch).

The current CEO of Intel, Lip-Bu Tan, discussed the restoration of the chipmaker to dominance shortly after his appointment.

"Together, we will work hard to restore Intel's position as a world-class products company, establish ourselves as a world-class foundry and delight our customers like never before," said Tan (emphasis added).

Due to the struggles of its foundry business, Intel announced plans to spin off Intel Foundry Services into a standalone subsidiary. But that was under previous leadership. Between the company appointing a new CEO and the government acquiring a 9.9% stake in the chipmaker, it's safe to say plans have changed.

Acquiring a large stake in Intel is part of the government's push to ensure domestic chip manufacturing. The structure of the deal suggests that Intel maintaining majority control of Intel Foundry Services is desired by the government.

Intel could still seek strategic investments for its foundry services without losing majority control. The warrant in the deal between the government and Intel applies if Intel's ownership falls under 51%.

Despite the sizable investment of the US government, Intel still finds itself in a state of flux. As of July of this year, the chipmaker planned to lay off 24,000 employees in 2025 and reduce its total employee count to 75,000. The company also plans to step back from several projects and reduce spending.

We'll have to wait to see the finalized details of the agreement between Intel and the government to see if plans will change.