Intel Reaches Deal to Make Chips for the US Military
Intel Corp. has officially qualified for up to $3.5 billion in federal funding to produce semiconductors for the Pentagon, after the chipmaker reached a binding agreement with U.S. officials, according to people familiar with the matter.
The secretive program, called the Secure Enclave, seeks to establish advanced chip manufacturing with military and intelligence applications. It spans multiple states, including a manufacturing facility in Arizona, Bloomberg reported.
While Intel has always been a strong contender for the award, opposition from other chipmakers, concerns in Washington about the wisdom of relying on one company, and a funding battle between multiple agencies and Capitol Hill threaten to cut Intel’s overall award.
The funding could be announced as early as next week, the people said, asking not to be named because the discussions are private. It would add to the $8.5 billion in funding and $11 billion in loans Intel may receive. has been awarded in March below Chip and Science Acta law that President Joe Biden signed in 2022 aimed at reviving US semiconductor manufacturing and reducing reliance on Asia.
Intel is still negotiating the terms of this broader incentive package, which would support facilities in Arizona, Ohio, New Mexico, and Oregon. Like other Chips Act winners, Intel has not yet received any money, and its award is considered preliminary. Funding for Secure Enclave also comes from the Chips Act grant program administered by the Commerce Department—after a dispute earlier this year over which agency would be responsible—but was processed outside the standard application process.
Intel, the Commerce Department and the Pentagon declined to comment. The White House did not immediately respond to a request for comment.
Intel shares rose less than 1% in late trading Friday after Bloomberg reported the deal. The stock has fallen 61% this year to close at $19.66.
The Secure Enclave deal signals that the U.S. government trusts Intel to deliver on the Pentagon’s plans despite the company’s latest troubles. Last month, Intel reported disappointing earnings and revenue guidance, sending its stock plunging and undermining confidence in CEO Pat Gelsinger’s ambitious turnaround plan, which relies on investments in factories around the world.
The chipmaker is now actively reassessing its manufacturing ambitions, Bloomberg reported. No final decisions have been made, but Intel is more likely to delay or halt projects outside the United States than its flagship facilities in Arizona and Ohio, people familiar with the matter said earlier.
The deal also reflects the Biden administration’s lack of other options: Pentagon officials have insisted on sourcing advanced semiconductors from an American company, and Intel is the only U.S. manufacturer of advanced processors. Other manufacturers include Taiwan Semiconductor Manufacturing Co. and South Korea’s Samsung Electronics Co., both of which are building factories on U.S. soil with the help of the Chips Act.
Some Washington officials have had initial discussions about purchasing chips from foreign chipmaking facilities in the United States, but those discussions focused on broader procurement guidelines and were separate from the Secure Enclave program, Bloomberg reported.
It’s unclear exactly what chips Intel will produce for the Pentagon. The Santa Clara, California-based company, which operates both design and manufacturing businesses, still relies on TSMC to produce some of its most advanced processors.
Intel has struggled to convince potential customers like Nvidia Corp. and Advanced Micro Devices Inc. of the viability of its products. Commerce Secretary Gina Raimondo has encouraged both companies to consider manufacturing at a facility Intel is building in Ohio, Bloomberg reported, but neither has plans to do so at this time.
Intel has said other companies, including Microsoft Corp., are looking into the idea of using it to manufacture their chip designs. Those efforts have yet to yield large orders or significant revenue.
For chipmakers, the Pentagon can be a tough customer. One report from the National Academies of Sciences, Engineering, and Medicine found that companies participating in the so-called trusted chip foundry program—a long-running effort similar to Secure Enclave but focused on older-generation chips—often had difficulty meeting Defense Department requirements or generating a return on investment from those orders.
The Pentagon was originally supposed to fund the bulk of the Secure Enclave program, but withdrew its $2.5 billion commitment in February. Lawmakers then handed the entire burden to the Commerce Department, which is responsible for the remaining $1 billion. Bloomberg reported that at one point, the agency planned to bundle its new Secure Enclave obligations into the money it had already set aside for Intel, but officials ultimately opted to treat the program as separate from the commercial manufacturing incentives.
The drama extended to other companies. In response to the funding dispute, the Commerce Department canceled a planned commercial research and development program, forcing officials to refuse applied for funding from Applied Materials Inc. for a $4 billion project in Silicon Valley. Efforts to increase the Chips Act by $3 billion, allowing the Commerce Department to revive that initiative, have stalled in Congress.
(Updates Intel stock information in seventh paragraph.)
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