In a first, the US administration under President Donald Trump has entered the country’s corporate realm with a 10 per cent stake in US-based tech major, Intel, making it one of its largest shareholders.
Trump announced the development on his social media handle, Truth Social, on Friday, saying: “The United States of America now fully owns and controls 10 per cent of INTEL, a Great American Company that has an even more incredible future”.
The government’s stake in Intel will be through the conversion of $11.1 billion in previously issued funds and pledges, giving it a gain of $1.9 billion already, on paper. It bought 433.3 million shares of non-voting stock priced at $20.47 apiece – a discount from Friday’s closing price at $24.80.
The deal is said to have been completed just a couple of weeks after the President asked for Intel CEO, Lip-Bu Tan, to resign on grounds of being a “highly conflicted leader” after reports emerged of his past investments in Chinese firms to the tune of $200 million.
Soon, Trump backed off after the Malaysian-born Tan, who has been on the job for slightly more than only five months, professed his allegiance to the US, which he said was his “home for more than four decades”.
Also Read: Intel CEO addresses ‘misinformation’ about China ties
The Silicon Valley firm has been under duress for some time now after a series of missteps by a variety of CEOs that set it back by more than $22 billion since the end of 2023. In its latest attempt at cushioning its losses, the company announced a mass layoff of 20,000 workers.
The company's market value currently stands at about $108 billion – a fraction of the current chip kingpin, Nvidia, which is valued at $4.3 trillion. Intel’s current stock price is also just slightly above where it was when Tan was hired in March, and more than 60 per cent below its peak of about $75 reached 25 years ago.
However, after striking a deal with Intel, the US government is betting that the company is on the comeback trail, with Trump even going on to praise Tan as “highly respected”.
In a statement after the deal was struck, Tan applauded Trump for “driving historic investments in a vital industry” and resolved to reward his faith in Intel.
“We are grateful for the confidence the President and the Administration have placed in Intel, and we look forward to working to advance US technology and manufacturing leadership,” he said.
The deal’s terms and how Trump made his way into buying Intel shares
Despite being a staunch critic of former President Joe Biden, it is an Act started under Biden’s presidency that has helped the US government buy a stake in Intel that it hopes to make profits from.
The CHIPs and Science Act was started to foster more domestic manufacturing of computer chips to lessen the dependence on overseas firms and paved the way for government grants to Intel.
About $7.8 billion had been pledged to Intel under the incentives programme, but only $2.2 billion was funded so far. Another $3.2 billion of the government investment is now coming through the funds from another programme called ‘Secure Enclave’.
As per the deal with Intel, the US government won’t have a seat on Intel’s board of directors, nor can it vote with its shares.
Why critics decry the deal
Critics have called the Government-Intel deal as an unwanted and troubling cross-pollination between the public and private sectors that could hurt the country’s tech industry.
For one, other tech companies may feel pressured to buy potentially inferior chips from Intel to amass favour with Trump, encouraging corruption and unfair trade practices.
Vice President of general economics for the Cato Institute, Scott Lincicome, posted on Friday that it was “overall a horrendous move that will have real harms for US companies, US tech leadership, and the US economy overall”.
Nancy Tengler, CEO of money manager Laffer Tengler Investments, is among the investors who abandoned Intel years ago because of all the challenges facing the firm.
“I don't see the benefit to the American taxpayer, nor do I see the benefit, necessarily to the chip industry,” Tengler said, while also raising worries about Trump meddling in Intel's business.
“I don't care how good of businessman you are, give it to the private sector and let people like me be the critic and let the government get to the business of government,” she added.
Additionally, the US government’s 10 per cent stake could also put Tan under greater pressure, especially if Trump starts fixating on Intel's stock price while resorting to his penchant for celebrating his past successes in business.
Previous instances of the US government entering into private shareholding
It’s not unprecedented for the US government to become a major shareholder in a prominent company, with one of the most notable instances being from the Great Recession of 2008.
During the economic crisis, the US government had injected nearly $50 billion into General Motors at a time when the automaker was on the verge of bankruptcy. The government’s roughly 60 per cent stake in the company however, ended up with a roughly $10 billion loss after it sold its stock in GM.
Since his second term as US President, Trump has been pushing to bring production back to the US and decrease his country’s trade deficit. By lessening America’s dependence on chips manufactured overseas, he believes the US will be leveraged as a technologically superior nation in its race with China to create artificial intelligence, hence the buying of stakes in Intel.
Even before gaining the 10 per cent stake in the firm, Trump had been using his power to reprogramme the operations of major computer chip companies, which includes asking Nvidia and Advanced Micro Devices (AMD) – the two leading companies whose chips are powering the AI craze – to pay a 15 per cent commission on their sales of chips in China in exchange for export licenses.
Also Read: Nvidia to start exporting AI chips to China
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