COMMENTARY
As the U.S. strives to build a resilient supply chain by securing domestic chip manufacturing, Intel has become a potential takeover target for U.S. infrastructure giant Broadcom and Taiwanese chip foundry behemoth TSMC.
Given China President Xi Jinping's declaration of reunification with Taiwan and the ongoing competition between China and the U.S. in advanced chip manufacturing, it is prudent for the U.S. to prevent TSMC from controlling Intel’s chip manufacturing operations.
To revitalize the U.S. semiconductor industry, the CHIPS Act of 2022 represents a bipartisan effort. With an allocation of $50 billion, the Act aims to enhance domestic chip production, reduce dependency on foreign suppliers and create a robust supply chain resilient to geopolitical disruptions. The Act provides substantial funding for the construction of semiconductor fabrication plants (fabs), research and development, and workforce training. Intel, one of the largest recipients of CHIPS funding, secured nearly $8 billion for expanding its manufacturing capabilities in Ohio, Arizona, and New Mexico.
Intel's Strategic Challenges
Despite the support from the CHIPS Act, Intel has faced significant challenges in recent years. The company's revenue has declined sharply, from $79 billion in 2021 to $54 billion in 2023, with a $16.6 billion loss in the third quarter of 2024. This financial downturn has made Intel vulnerable to potential takeovers by domestic and foreign entities. The prospect of breaking up Intel and TSMC gaining control of Intel’s chip manufacturing operations raises significant national security concerns, given the geopolitical tensions between China and Taiwan.
Geopolitical Risks and National Security
Taiwan faces immense pressure to reunify with China. In his December 2024 New Year's speech, President Xi Jinping declared China's 'reunification' with Taiwan unstoppable, warning pro-independence forces. Over the past year, Beijing has increased military pressure, frequently sending warships and planes near Taiwan. Given the Chinese government's implicit control over all Chinese firms, it is likely that after reunification, China would control TSMC, potentially jeopardizing the U.S. semiconductor supply chain.
The U.S. government has emphasized the need for domestic semiconductor manufacturing to ensure secure and reliable supply chains for defense and critical infrastructure. Intel's foundry operations are integral to the U.S. Department of Defense's (DoD) efforts to maintain technological superiority and operational readiness.
The IDM 2.0 Transformation Plan
Under the leadership of former CEO Pat Gelsinger, Intel launched the IDM 2.0 (Integrated Device Manufacturing 2.0) transformation plan to revitalize its manufacturing capabilities. The plan aimed to expand Intel's wafer fabs globally and enhance its in-house design and manufacturing of advanced AI chips.
However, the company's financial struggles and declining market share in recent years have hindered the successful implementation of IDM 2.0. In response to these challenges, Intel's board announced plans to spin off its foundry business into an independent subsidiary as the only option to survive.
The Role of the U.S. Government
The U.S. government plays a crucial role in safeguarding the domestic semiconductor industry. The CHIPS Act not only provides financial support but also imposes restrictions on funding recipients to prevent the expansion of semiconductor manufacturing in countries that pose a national security threat. Any deal involving TSMC or other foreign investors taking control of Intel's factories would require government approval. This regulatory oversight is essential to ensure that critical manufacturing capabilities remain under U.S. control.
Strategic Measures for Securing Chip Manufacturing
To secure the future of its chip manufacturing, the U.S. must implement several strategic measures. Strengthening domestic production is essential to reduce dependency on foreign suppliers. Continued investment in domestic semiconductor fabs, complemented by additional incentives to attract private sector investments, will accelerate the construction of new manufacturing facilities.
Enhancing research and development capabilities is also critical to maintaining technological leadership. The U.S. government should support initiatives that foster innovation in semiconductor design and manufacturing processes. Addressing the talent gap in the semiconductor industry is vital for sustaining growth. The CHIPS Act's provisions for workforce training should be expanded to include partnerships with educational institutions and industry stakeholders.
Mitigating geopolitical risks is crucial for ensuring a resilient semiconductor supply chain. Diversifying the supply chain and reducing reliance on any single region will help mitigate these risks. The U.S. should collaborate with allied countries such as South Korea to establish a more resilient and distributed semiconductor supply network.
Regulatory oversight is also essential to ensure that critical manufacturing assets remain under U.S. control. The government should closely monitor and regulate foreign investments in the semiconductor sector to prevent potential threats to national security. By implementing these strategic measures, the U.S. can build a resilient and self-sufficient semiconductor manufacturing sector that supports national security and economic stability.
Instead of allowing TSMC to control Intel’s chip manufacturing operations significantly, the U.S. government should consider inviting IBM and South Korea’s Samsung as additional parties to take over Intel’s chip manufacturing operations in the United States. IBM, Samsung, and TSMC are all developing the capability to produce 2-nanometer chips. Diversifying the risk by involving U.S. firms and firms from allied countries can enhance the security of our supply chains.
