According to media reports, the U.S. government is considering reducing Intel Corporation INTC's federal chips grant under the CHIPS and Science Act from $8.5 billion to less than $8 billion. On the condition of anonymity, various sources associated with the proceedings observed that the decision was largely because Intel had procured a $3 billion contract from the Pentagon to produce chips for the U.S. military.

Intel’s delay in some of its planned investments in chip facilities in Ohio might have also influenced the purported move. The company plans to finish this project by 2030 instead of 2025.

INTC’s Original Deal: A Flashback

Under the agreement inked in March this year, Intel has the option to access federal loans of up to $11 billion, further amplifying its capacity for innovation and expansion. In addition, by availing the U.S. Treasury Department's Investment Tax Credit, Intel anticipates substantial returns on qualified investments exceeding $100 billion over five years, which is likely to fuel long-term growth and competitiveness.

The funding, a crucial component of the CHIPS Act, underscored the government's commitment to enhancing domestic semiconductor production, particularly in cutting-edge technologies. This collaboration has represented one of the most substantial public-private investments in the U.S. semiconductor industry to date. 

Intel's CEO, Pat Gelsinger, heralded the partnership as a watershed moment, emphasizing the significance of semiconductor innovation in powering the digital revolution. The funding was poised to reinforce Intel's position as a trailblazer in technology leadership, facilitating resilient and sustainable semiconductor supply chains critical for America's future.

Will the Move Impact INTC?

However, with the government deciding to reduce the funding, it appears Intel has fallen down the pecking order. Intel has faced challenges due to the disruptive rise of over-the-top service providers in this dynamic industry. Price-sensitive competition for customer retention in the core business is expected to intensify in the coming days. Aggressive competition is likely to limit the ability to attract and retain customers and affect operating and financial results.

Moreover, weaker spending across consumer and enterprise markets, especially in China, resulted in elevated customer inventory levels, culminating in soft demand trends. Strict export control measures are further likely to affect the market dynamics.

Intel's overarching strategy aligns seamlessly with the objectives of the CHIPS Act, focusing on process technology leadership, resilient supply chains and the development of a world-class foundry business. However, the soft third-quarter results and the proposed funding curtailment look ominous for Intel.