Advertisement
Subscriber-only Newsletter
By Peter Coy
Opinion Writer
This week I interviewed Pat Gelsinger, the chief executive of Intel, which is one of the most important companies in the United States. President Biden seems to think it’s singularly important, anyway: His administration has tentatively agreed to give Intel $8.5 billion in grants and $11 billion in low-cost loans to help it push ahead in computer chip design and manufacturing. It should also qualify for about $25 billion in investment tax credits.
To Biden and Commerce Secretary Gina Raimondo, the special thing about Intel is that it doesn’t just design chips in the United States, as, for example, the current stock market darling Nvidia does. It manufactures them domestically as well. It’s planning to spend $100 billion over five years on manufacturing and research and development projects in Arizona, New Mexico, Ohio and Oregon.
The Biden administration believes semiconductors are a key to the future, so allowing their manufacture to move almost entirely offshore would jeopardize America’s national security and economic leadership. “Leading-edge logic chips are essential to the world’s most advanced technologies like artificial intelligence, and this proposed funding would help ensure more of those chips are developed and made domestically,” the Commerce Department said last week in its announcement of the incentives for Intel.
In chip-making, Intel goes up against T.S.M.C. of Taiwan, Samsung of South Korea, and GlobalFoundries, which is majority owned by an investor based in Abu Dhabi. While all three of those rivals have some U.S. production, Intel is the only one that has U.S. headquarters and its most advanced production and process technology R & D in the United States. Raimondo, at the announcement in Arizona, called Intel “America’s champion semiconductor company.”
For Gelsinger, being unofficially named a national champion brings complications. The money is nice, but it comes with strings attached. All C.E.O.s of public companies work for their shareholders; Gelsinger has to do that, but also please the government. The money is released in tranches as Intel reaches the milestones that the government has set for it, such as construction of chip factories (“fabs”), training of workers and development of new products.
Wall Street isn’t sold on Gelsinger’s commitment to manufacturing, which is expensive and has an uncertain payoff: In October 2021, when Gelsinger announced the long-term financial impact of his manufacturing expansion, “Wall Street was stunned” and Intel lost $25 billion in market value, The Times reported. The company’s shares have fallen about 20 percent over the past five years, while shares are up more than 500 percent at Advanced Micro Devices and 1,800 percent at Nvidia, both of which are fabulously fabless, meaning other companies make their chips for them.
The silver lining for Gelsinger is that at this point, the shareholders who have stuck by Intel presumably share his belief in the importance of doing one’s own manufacturing, or they would have dumped their stock long ago.
“In semiconductors, R & D and manufacturing are inextricable,” Gelsinger told me, defending his commitment to produce chips, not just design them. “A fab is an R & D organism at scale. This isn’t like building a Clorox fab. The invention happens every day.”
It’s tricky, though. To make fuller use of its production expertise, Intel is going into the business of making chips for other companies, including rivals. So for accounting of profits and losses it’s separating its production operation from the business units that design chips. Those arm’s-length business units will be free to contract with rivals of Intel such as T.S.M.C. for their production. Details of the new structure will be announced on Tuesday. It’s not hard to imagine that one day Intel will split into two companies, one for production and one for design.
I asked Gelsinger why Intel needs subsidies, since he had already committed in 2021 to building state-of-the-art fabs “without any presumption of incentives,” as he once put it. He said the subsidies — incentives, as he calls them — level the playing field with competitors who are subsidized by their governments.
Subsidies by foreign governments are the main reason it has been 30 percent to 40 percent cheaper to build a fab in Asia, Gelsinger said. The share of global chip production capacity in the United States and Europe has fallen to 20 percent from 80 percent over three decades, he said. In words that will be music to Biden’s and Raimondo’s ears, he said, “Of course, as the U.S.-born-and-bred R & D, manufacturing and design house, we have a clear bias” to perform those functions in the United States.
I asked him how he deals with conflicts between what his shareholders want and what the government wants. In general, he said, they want the same things. But not always. “We’ve been trying to navigate that turf very carefully,” he said, adding that the negotiations with the government are reviewed with the board, which represents the shareholders. “Unquestioned harmony here? Of course not.”
One potential source of dissonance: Intel still does business in and with China. Although it sold a wafer fab in Dalian, in a deal announced in 2020, it still has two factories in Chengdu that do assembly and testing. Gelsinger told me those are to serve the domestic Chinese market. Lenovo, ZTE, Alibaba and ByteDance “are big, important customers for us,” he told me. He said he has visited China on business 74 times and is about to make it 75.
I asked if U.S. officials are trying to stop Intel from selling state-of-the-art chips to the Chinese. “That’s an ongoing conversation,” he said. “We believe the business community should be a bridge between the U.S. and China.” He chairs the China Center advisory board of the U.S. Chamber of Commerce. “We understand some of the national security implications” of selling to China, he said, “but we also believe that you still want to have good access to the second-largest market in the world.”
I talked to two outside experts about Gelsinger’s challenge. Ellen Hughes-Cromwick, who was the chief economist at Ford Motor and later the Commerce Department, said she likes the U.S. approach to industrial policy because it’s voluntary: Intel and its shareholders will get on board only if they believe it’s in their interest.
“We’re in a once-in-a-generation or once-in-two-generations inflection point,” to rebuild U.S. manufacturing or not, she said. Hughes-Cromwick is a senior resident fellow for climate and energy at Third Way, a think tank. She added by email: “We lost significant capacity since the early 2000s — hollowing out our economy. Many forgot the job multiplier effect associated with manufacturing.”
Willy Shih, an innovation expert at Harvard Business School, warned that “problems that were a long time in the making don’t get solved overnight.” He noted that Donald Trump has assailed parts of the Inflation Reduction Act, a different plank of Biden’s industrial policy. That doesn’t mean Trump would seek to cancel the CHIPS and Science Act — the source of funding for the Intel incentives — but Shih said, “If there is a change of administration, a lot of cards go up in the air.”
Gelsinger realizes that he’s in a tough spot because the company is spending huge sums and not yet seeing a return on the investment. He’s racing through five nodes — essentially, generations of chips and the associated chip-making equipment — in just four years, several years faster than the typical pace. Intel vows to regain world leadership in production technology in 2025 with a generation of chips called 18A.
The hopes of a lot of people — investors, administration officials, members of Congress — are hanging on whether Intel can carry it off. Said Gelsinger: “You have to trust me and you have to be patient.”
Concerning consent: If regulations were less detailed, companies wouldn’t need to create so much fine print. Make the regulations simpler and let adult consumers, able to read and write, decide on their own.
Udo Hartmann
Berlin
What a marvelous essay on the eclipse! I was in Carbondale, Ill., for the eclipse of 2017 and had perfect viewing conditions, although clouds obscured the view for many others in the near vicinity. I remember thinking, “Oh my God, I’m really going to be allowed to see this thing!”
Dan Coren
Philadelphia
Even if most economic value is created by A.I., it’s still hard to imagine a future in which work ceases to be central to our lives. Deeply ingrained within humans is the desire to contribute meaningfully to society. While paid work is certainly not the only means of doing so, secure employment with a single employer has become embedded as the social and economic norm for well over a century.
Brendan Moore
Palo Alto, Calif.
Things were so much more difficult before computers, so why are we all so much busier today? I think the more things are automated and made easier, the more we humans will think of things that could be done and improved. There are always opportunities to do more.
Lisa Meder
Brookfield, Wis.
As the publisher of Chicago Agent Magazine, which you cited in your Opinion piece, I am compelled to say that I have been a licensed Realtor since the 1980s and during all this time the National Association of Realtors has never required a certain commission rate in any part of the rules or anywhere else in the association. Any changes from this lawsuit settlement will be mostly in paperwork and the conversations Realtors have with their clients.
Marci Sepulveda
Chicago
“I want to rock and roll all night and party every day.”
— Kiss, “Rock and Roll All Nite” (1975)
Peter Coy is a writer for the Opinion section of The Times, covering economics and business. Email him at coy-newsletter@nytimes.com. @petercoy
Advertisement
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Rami G Khouri
Mort Laitner
Rachel Marsden
Donald Low
Bradley Blankenship
Ali Fathollah-Nejad
Nikkei Editorial
Abbas Juma
Michael Kwet
visit website
