THE US will award Intel US$8.5 billion in grants and as much as US$11 billion in loans to help fund an expansion of its semiconductor factories, the Commerce Department announced on Wednesday (Mar 20), marking the largest award from a programme designed to reinvigorate the domestic chip industry.

The package will support more than US$100 billion in US investments from Intel, including efforts to produce cutting-edge semiconductors at large-scale plants in Arizona and Ohio, the department said on Wednesday. The money also will help pay for equipment research and development and advanced packaging projects at smaller facilities in Oregon and New Mexico.

In addition, Intel has indicated that it plans to tap investment tax credits from the Treasury Department that could cover as much as 25 per cent of capital expenditures, according to the Commerce Department.

The subsidies come from the 2022 Chips and Science Act, which set aside US$39 billion in grants – plus loans and guarantees worth US$75 billion – to convince chip companies to build factories on American soil. The hope is to reverse a decadeslong shift of semiconductor production to Asia.

Commerce Secretary Gina Raimondo has said the US aims to produce one-fifth of the world’s advanced logic chips by the end of the decade, and that Intel’s investments are a key part of that goal.

For Intel, the facilities are part of an ambitious turnaround bid under chief executive officer Pat Gelsinger. The effort has included building up a foundry business – an operation that makes chips for other companies – and Intel recently secured Microsoft Corp. as a high-profile customer.

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Gelsinger also has been trying to restore Intel’s technological capabilities. In recent years, the company had fallen behind Asian rivals Taiwan Semiconductor Manufacturing Co and Samsung Electronics in that area. They too are stepping up US expansion plans and are expected to receive their own Chips Act awards in the coming weeks.

Intel is the first company to land a preliminary Chips Act funding deal for advanced chipmaking facilities. Earlier awards went to companies producing older-generation semiconductors. A senior administration official declined to specify how much federal funding will go to each of Intel’s projects, describing the award as a holistic agreement.

Gelsinger said that it’s been economically uncompetitive to build plants in the US compared with East Asia. These awards help redress that imbalance, he said. The US’s loss of chip manufacturing took place over decades, and it may take more than the current programme of support to fully reverse that trend.

“I do think we’ll need a Chips II,” he said, speaking with reporters ahead of the event. “It doesn’t get fixed on one three-to-five-year programme.”

The money will be disbursed after a due diligence stage, and it will come in tranches tied to production goals and other benchmarks set by the Commerce Department. The official, who asked not to be named to brief reporters ahead of the announcement, declined to specify those milestones and said they will be further articulated as Intel progresses towards a final agreement. Commerce officials expect money to start flowing by the end of this year, the official said.

Intel’s award will be the “single-biggest announcement of a grant to any Chips recipient,” Raimondo told reporters ahead of the news. The projects will create more than 30,000 construction and manufacturing jobs across four states, she added, pointing to US$50 million set aside in Intel’s award specifically for workforce development.

The timeline for those jobs will vary from facility to facility, the official said, emphasising that Intel’s construction plans remain in line with their initial projections. That has been a concern: Intel’s shares took a hit earlier this year after the Wall Street Journal reported a delay in Ohio.

The first of several Arizona facilities will be operational by the end of this year, the official added, and the chipmaker expects construction to finish in late 2026 in Ohio.

The funding announced on Wednesday is focused solely on commercial production. But Intel is also expected to receive some US$3.5 billion in funding for manufacturing of military and intelligence chips. That grant has thrown a wrench into broader Chips Act negotiations over the past few weeks because the Pentagon pulled out from a plan to foot more than two-thirds of the bill.

The military’s so-called secure enclave programme is run through a separate process, the official said, declining to provide any further updates.

The Commerce Department earlier announced awards to the American subsidiary of BAE Systems, Microchip Technology and GlobalFoundries. More than 600 companies have expressed interest in the funds in total, and advanced chipmakers alone had requested more than twice the amount of money set aside for them.

When asked whether the amount Intel is receiving is enough, Gelsinger said that both his company and the Commerce Department had learnt a lot in the negotiations.

“We believe we’ve accomplished our objectives,” he said. “Would I like more? Of course, I’d like more.” BLOOMBERG