Intel counts on U.S. chipmaking, but faces a problem in China

As Forrester senior analyst Alvin Nguyen told Business Insider, “Intel’s importance to the US in semiconductor and product manufacturing has raised significant funding.”

This point has been reinforced more recently. Intel has been presented with various options to shore up its business after seeing its value more than halve this year following production and strategy issues that have left it well behind in the generation boom. AI.

One option would see Intel bought by rival Qualcomm, which has approached the 56-year-old company in recent days, The Wall Street Journal reported. In another scenario, Intel could get a huge injection of capital from investment giant Apollo, which according to Bloomberg is willing to invest up to $5 billion.

It is uncertain whether any of these scenarios will come to pass. What seems certain, however, is that Intel was able to attract these options because it is still considered to be strategically important to the future of the US chip industry.

The US needs Intel – a company that designs and manufactures chips – at a time when reducing reliance on overseas chipmakers such as Taiwan’s TSMC has become a national security priority.

But new efforts to cement the embattled chipmaker as the national champion will have to contend with Intel’s close ties to China — the country that is arguably the biggest driver behind efforts to bolster domestic chip production.

A national champion with close ties to China

One of the key reasons the US launched its CHIPS Act in 2022 was to reduce reliance on overseas manufacturers to produce the sophisticated hardware components that power the world’s electronics.

While Nvidia, AMD and other Silicon Valley players have become world leaders in chip design, manufacturing has typically been outsourced to TSMC, a source of recent tension given the looming threat of a possible Chinese invasion of Taiwan .

As computer chips are increasingly used to manage and process large amounts of data, US officials believe there is an urgent need to build manufacturing plants at home that the likes of Nvidia can call on.

This is where Intel comes in. As it stands, Intel is the only US chip company with factories, known as fabs, that are capable of producing advanced semiconductors. It has facilities in Arizona, New Mexico and Oregon. TSMC is set to open a factory in Arizona next year, while reports suggest Sam Altman is looking to raise funds to set up chip manufacturing plants. But even then, Intel is set to remain the leading maker of high-end chips in the US.

Notably, Intel also has operations in China. According to its website, Intel’s 385,000-square-foot Chengdu campus is home to two factories that “produce chipsets and microprocessors for computers around the world,” though Intel CEO Pat Gelsinger told The New York Times earlier this year that they have “Serves the Chinese domestic market”.

Intel’s customers in China include Alibaba and TikTok parent ByteDance, which have come under US government scrutiny. Gelsinger noted to The Times that “the business community should be a bridge between the US and China.”

While Intel sold a factory in the port city of Dalian to South Korea’s SK Hynix in 2020, investment continued to pour into the country through its venture capital arm, Intel Capital. A Financial Times report in July said the investment vehicle had stakes in 43 startups in China.

It’s worth noting that these ties have remained despite recent efforts by Beijing to become self-sufficient, which have resumed since Washington implemented strict new export controls in 2022 to curtail the supply of America’s most advanced chip technology to China .

China’s drive to create a self-sufficient industry, which locals call the “Xinchuang” initiative, could eventually lead to the country bypassing Intel in the supply chain. In March, the Financial Times reported that Intel technology would be phased out of Chinese government computers and servers.

As Forrester’s Nguyen notes, we shouldn’t be all that surprised by Intel’s ties to China. “Intel’s ties to key businesses in China are typical of a high-tech firm,” he said. “They have in-country manufacturing and customers who benefit from their technology.”

This is true. But it’s also worth thinking about what a struggling Intel would mean for China’s broader tech ambitions.

“Weaker Intel and a weaker U.S. semiconductor manufacturing base is probably a positive thing for China,” Stacy Rasgon, an analyst at research firm Bernstein, told the Yahoo Finance Morning Brief on Monday.

For that reason, Rasgon said he saw “no reason” for Chinese regulators to support the Qualcomm deal, which it would have a say in due to Intel’s operations in the country.

As Intel and the US consider plans to increase manufacturing capacity domestically, the company’s ties to China will grow in the global chip race.