What you need to know
- Intel was set to receive $8 billion in grants through the US CHIPS Act and an additional $11 billion in loans, but that is now in jeopardy.
- To receive funding through the CHIPS Act, a company must meet milestones and stand up to scrutiny.
- Intel has struggled in many areas this year, including Intel Foundry services losing money and the company sharing a disastrous earnings report in August.
As a seasoned analyst with over two decades of experience in the tech industry, I have seen my fair share of ups and downs, but Intel’s current situation seems particularly challenging. It is no secret that the company has been grappling with several issues this year, from financial losses to legal woes, and now it appears that the much-needed funding through the CHIPS Act may be out of reach.
If Intel doesn’t implement significant adjustments, its 2024 outlook could become even more challenging. The current year has already seen setbacks such as job cuts affecting 15,000 employees, a class action lawsuit over faulty 13th Gen and 14th Gen CPUs, a $32 billion market cap loss in one day, and lawsuits from shareholders alleging Intel concealed unfavorable information about its Intel Foundry services. Additionally, the company might face delays in receiving funds through the CHIPS Act.
Under the CHIPS Act, Intel stands to get $8.5 billion in grants and $11 billion in loans, yet this funding is contingent upon Intel achieving specific goals. The US Government won’t release the funds until they are certain that Intel will fulfill its commitments. While these conditions aren’t unique to Intel, it seems that Intel is finding it harder than other tech giants to convince the government of their trustworthiness.
The most recent updates about this ongoing story originate from a Bloomberg report, who spoke to individuals knowledgeable about the circumstances. According to these sources, Intel appears hesitant to disclose specific information to the U.S. government that could demonstrate its ability as a chipmaker. Unfortunately, no official confirmation has been received from the Commerce Department, who chose not to comment on the matter.
Intel shared a statement to Bloomberg:
Our US projects in Arizona, New Mexico, Ohio, and Oregon are showing substantial advancement. We eagerly anticipate wrapping up our financing contract in the near future.
In August, Intel released a disappointing financial report showing a loss of $1.61 billion. Surprisingly, Reuters revealed that Intel Foundry services were struggling to perform well. In response to this, Intel aims to save $10 billion by the year 2025 by reducing its workforce by approximately 15,000 employees.
In a recent memo to Intel employees, Gelsinger expressed that our earnings have not increased as anticipated and we haven’t fully capitalized on emerging technologies such as AI. He stated that our expenses are excessive, and our profit margins are insufficient. To remedy this situation, especially considering the more challenging financial projections for the second half of 2024 than initially projected, bolder measures need to be taken.
In addition, the corporation reported a significant loss of approximately $7 billion in 2023 from its Intel Foundry service offerings. Previously this year, Intel’s Chief Executive Officer, Pat Gelsinger, communicated to shareholders that the company is not anticipating profitability until at least 2027.
During a span when NVIDIA rose to become the globe’s most prosperous corporation, Intel encountered difficulties. Notably, Intel has struggled to leverage the artificial intelligence (AI) boom as effectively as other tech titans have.
Based on reports from Bloomberg, Intel is set to explore future strategies during an upcoming board meeting this month. Earlier reports by Reuters suggested that the mid-September board gathering may involve discussions about cost reduction and asset divestiture.
A tough 2024 for Intel
Intel is a large corporation that sometimes experiences triumphs in certain sectors, but may face challenges in others. To boost its performance, Intel should focus on increasing the success of its Foundry services and other areas, but there are optimistic signs for the company in 2024. Just this month, Intel unveiled its Core Ultra Series 2 processors, which boast superior performance and battery life compared to rival chips from Qualcomm. This announcement is noteworthy considering the favorable reception of Qualcomm’s Snapdragon X Elite and Snapdragon X Plus.
Despite Intel’s upcoming processors, it appears they may struggle to reassure the US government about their reliability. To regain the trust of the government, Intel must demonstrate that its Foundry services can be financially sustainable. The government’s focus is on fostering domestic semiconductor production, rather than on how well Intel’s processors extend battery life.
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2024-09-11 16:39