Chipmaking: Capitalism With American Characteristics
What the US government's 10% stake in Intel mean for America's embattled chipmaker.
On 22 August 2025, Commerce Secretary Howard Lutnick announced that the US government has acquired a 10% stake in Intel, America’s homegrown chipmaking company. Acquired is a strong word, however, as the majority of the price comprises of grants that were already awarded under Biden’s CHIPS Act. All in all, the US government spent $8.9 billion, which came to around $20.47 a share.
Intel woes
Intel was once America’s semiconductor darling. Over the past two decades, however, the company has failed to catch the biggest waves in its industry. It missed the rise of smartphones in the late 2000s, was slow to adopt advanced lithography machines, and largely ignored the boom in artificial intelligence (AI). Between 2021 to 2024, Intel’s revenue dropped by a third, from $80bn to $50bn. 2024 saw it suffered a net loss of almost $20bn. In terms of capitalisation, Intel is the 17th most valuable chip firm, and is less than a tenth the value of TSMC, a chipmaking giant.
Yet, Intel is America’s only chance at producing chips locally.1 To understand why, it’s important to understand the chip industry. Firstly, chip companies can be broadly categorised into two: design, and foundries. Chip design firms don’t build their own chips, but they excel at designing them. Perhaps the most famous of these is NVIDIA, who has decades of experience in logic design: piecing together the architecture of cores, how they’re programmed, and how they execute and fetch data. In software, they also specialise in providing libraries and drivers for their devices for graphics, and now AI. They are as much a software company as they are hardware.
These chip design firms, who do not have the manufacturing capabilities themselves, are also referred to as ‘fabless’. Fabless companies then outsource the fabrication to foundries. NVIDIA, for instance, sends its designs to TSMC. Foundries use lithography machines to build up layers of circuitry on a silicon wafer, and pattern these intricate layers. The most advanced chips use extreme ultraviolet (EUV) lithography machines, which can cost up to US$400 million a piece.
The third kind is integrated device manufacturers (IDM). They design chips, and handle manufacturing in-house. Intel is an IDM. Throughout its history, Intel has designed and built its own chips. That integration allowed it to use its manufacturing capabilities to deliver better products even when its chip design arm lagged behind. However, from the mid 2010s, repeated manufacturing failures saw it fall behind its foundry competitors. In 2021, Intel itself began outsourcing production of its most advanced chips to TSMC.
Intel is floundering. On the design side, it is nowhere close to NVIDIA, which dominates the high-performance GPU market. On the manufacturing side, Intel has scrapped foundry projects in Germany and Poland, and delayed the opening of advanced fabs in Ohio to at least 2030. Intel would need to invest $50bn between 2025 and 2027 to remain competitive in cutting-edge manufacturing. The Economist reported that Evercore’s valuation of Intel’s design arm might amount to $100bn. This would handily cover Intel’s investment needs.
Throwing good money after bad
It is understandable why the US wants Intel to do well. The most advanced chips, which feature components literally atoms wide, are made almost entirely by TSMC. Reliance on a single supplier, especially one based in Taiwan, is especially risky. But throwing good money after bad, even if the 10% stake is technically free, is not wise advice. Even if Intel splits and sells its design arm to invest in its manufacturing arm, it might not catch up with TSMC, especially not in the near future.
The solution is to look elsewhere. TSMC is fast running out of land for its giant fabs in Taiwan, and is suffering from an ageing workforce. TSMC has already pledged a total of $165bn to bring advanced chipmaking into the US, particularly Arizona. Samsung, another IDM like Intel, is already building a new foundry fab in Austin, Texas, which is set to produce Apple’s next-gen chips. Instead of dumping billions into Intel, the US government should perhaps look into the structural friction that inhibits TSMC and Samsung from setting up their fabs in the US — skilled labour. Both TSMC and Samsung has complained that they lack skilled workers in the US; TSMC even had to fly in Taiwanese engineers to build its Arizona plant. A sensible domestic policy that eases permit bureaucracy and engineer-training programmes will make the US attractive for big players to build fabs in its own backyard. But that is Biden’s legacy, in the form of the CHIPS Act. Trump likely won’t stand for it. In fact, he has considered scrapping the bill entirely.
Economic intuition tells us the same: to breed innovation, companies should compete freely against each other. If Intel is lagging behind its peers, then it must find ways to remain competitive again on its own. Either it cuts off a leg to save the other, or risk losing even more market share the longer it languishes.
American characteristics
China’s ‘socialism with Chinese characteristics’ is arguably instrumental in propelling Chinese companies to the frontiers in solar panels, electric vehicles, and increasingly, AI. Perhaps Trump wants to take a page out of China's playbook. But instead of strategic investments into targeted industries, the Trumpian way is ostensibly one of Mafia-styled extortion.
Just two weeks ago, chip giants NVIDIA and AMD have to pay a 15% cut on China-based chip sales to the US government, an unusual agreement after Trump’s meeting with Jensen Huang, NVIDIA’s CEO. A similar parallel would be handing over 'protection money’ to the local mob boss to ‘prevent any problems’. Intel’s CEO Lip-Bu Tan apparently didn’t get the memo, and Trump called for his resignation. Days later, Trump met with Tan, and Intel gave up 10% of the company.
Trump won’t stop at Intel. Just hours ago as of writing, Trump declared that he will “make deals like that… all day long.” In a way, these ‘deals’ seem like a warped forward guidance for America’s industrial policy to come: bend the knee, or face consequences. How exactly this draconic capitalism with American characteristics bode for US firms, especially Intel, remains to be seen. Either way, the shakedown of America will continue, as long as the Don remains the mafia don of America.
By locally, I meant produced by an American company. The only place in the US that is producing advanced chips (5nm and below) is TSMC’s fab in Arizona.