Financial Services, November 25 (Editor Zhou Ziyi) According to media reports on Sunday (November 24), quoting sources, the US government plans to cut Intel's federal chip subsidy from 8.5 billion US dollars to less than 8 billion US dollars.

The Biden administration made this change in part because Intel has signed a multi-billion dollar military chip manufacturing contract with the Pentagon.

Earlier, Intel would exclusively receive a government contract worth 3 billion dollars to manufacture chips for the military. Two people familiar with the matter revealed that the size of the contract prompted the Commerce Department to decide to reduce incentives to Intel. The combination of military contracts and Chip Act grants brought the total rewards of the bipartisan bill to more than $10 billion.

Additionally, people familiar with the matter said that the move also takes into account Intel's current technology roadmap and customer needs. Although Intel has been working hard to improve its technical capabilities to catch up with competitors such as TSMC (TSMC), it has been difficult to convince customers that its technology is comparable to TSMC.

Intel's business has been faltering since this year. The company's sales fell 6% last quarter and is currently laying off 0.015 million employees. Meanwhile, the Biden administration has been concerned about Intel's ability to deliver on its investment promises.

Major blow

This spring, the Biden administration announced plans to provide Intel with nearly $20 billion in grants and loans, including $8.5 billion in direct funding and up to $11 billion in loans. This is the US government's biggest subsidy for the production of cutting-edge chips. The funds will be used to build two new plants and modernize an existing one, a move aimed at boosting the company's semiconductor chip production in the country.

This spending is part of the 2022 Chip and Science Act signed by President Biden, which will provide $52.7 billion in funding to the semiconductor industry to boost domestic semiconductor production, including $39 billion in semiconductor production subsidies and $11 billion in R&D subsidies.

Intel has long been seen as the biggest beneficiary of the bill, and the company is also actively lobbying to pass the bill. However, its operational difficulties complicated negotiations for a final ruling.

Instead, the investment in Intel was originally at the cutting edge of the government's ambition to bring the chip manufacturing industry back from Asia to the US. However, Intel's current plight is also a blow to the Biden administration's plans to speed up domestic chip manufacturing.

In the final stages of Biden's term, the US Department of Commerce has been racing against time to finalize contracts and begin allocating funds for the Chip Act.

Earlier this month, the Commerce Department said it had completed the terms of a $6.6 billion grant to TSMC to build a semiconductor plant in Arizona. The Biden administration said that the plan has stimulated significant growth in new factory construction, and the US will be the only country where the top five global chip makers have set up factories.