Intel boss presses Congress for manufacturing subsidies

Gelsinger also confirms he's ended multi-billion share-buyback scheme

Intel CEO Pat Gelsinger on Wednesday urged US Congress yet again to pass $52 billion in funding swiftly to boost America's semiconductor industry – and said Wall Street's negative response to his costly manufacturing expansion plan is proof Intel is worthy of the subsidies.

Gelsinger made his comments alongside the CEOs of memory vendor Micron and semiconductor equipment maker LAM Research during a US Senate Committee hearing that largely focused on the pros and cons of passing subsidies for chipmakers. While the Senate and House of Representatives have each passed a version of the spending legislation, they have yet to reconcile the bills' differences.

"We've already wasted several quarters since the Senate acted last year, and now it's time for us to move forward rapidly," Gelsinger said of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act during the hearing of the Senate Committee on Commerce, Science, and Transportation.

Senator Tammy Baldwin (D-WI) said Congress is making progress on the semiconductor spending bill but didn't provide a timeline. "Congress is on the brink of putting together a conference committee to advance the variously named competition bill. And I hope that we will do our jobs without delay," she said.

The semiconductor CEOs and pro-subsidy committee members reiterated the reasons for using US taxpayer dollars to aid with a domestic expansion of semiconductor manufacturing: fighting against future chip shortages and inflation; reducing reliance on chipmakers in Asia, where around 80 percent of chipmaking happens now; hedging against future geopolitical instability, particularly in light of concerns about Chinese aggression against Taiwan; and growing US manufacturing jobs.

But the CEOs of Intel, Micron and LAM Research also faced pointed questions about their spending plans and whether they deserved to receive subsidies. They were also asked about doing business in China as well as their commitments to environmental sustainability and diversity.

A few times, Gelsinger emphasized that Intel is "putting our chips on the table" by spending tens of billions of dollars in creating new manufacturing plants over the next several years. He pointed out that the plan is coming at a great cost to the company, and it hasn't made investors happy.

"I've lowered our profitability by 600 basis points this year. I've made the company free cash flow negative for the first time in three decades. I've doubled our capital investments, all to the howls of Wall Street," he said about the negative Wall Street response to Intel's investor meeting last month.

Without the funding, Intel would continue to build out new fabs in Arizona and Ohio, Gelsinger said, but the expansion would take longer, and it wouldn't be as comprehensive.

"The CHIPS Act is intended, from my perspective, to enable me to go bigger and faster than the bold commitments that we have already made that have recieved very negative response from Wall Street," he said. "We want to do more and faster. This is all about restoring US [competition], bringing back this mantle from Asia on a critical industry, not only for our economy but also our national security."

Understandable support

Sanjay Mehrotra, the CEO of Micron, echoed his support for the CHIPS for America Act but also urged Congress to pass refundable tax credits for the industry that he said would help the US be more competitive versus subsidies and tax incentives offered in fab-rich Asia.

"Timing is of the essence. Other countries are moving forward. We need to catch up in this area to get a level playing field," he said.

Timing is of the essence. Other countries are moving forward. We need to catch up in this area to get a level playing field

Senator Rick Scott (R-FL) was among the few who expressed deep skepticism of the chip subsidies and asked what the return on investment would be for taxpayers. "I feel like we're fiduciaries for the American taxpayer. They give us their dollars. They want to make sure those dollars are spent well," he said.

Gelsinger pointed to the job-creating potential of new fabs and said every job created by Intel, on average, creates "greater than ten other jobs," adding "These are seen as some of the most lucrative, job-creating, tax-producing, industry- and community-creating jobs in America."

Scott asked how Intel would respond if China invaded Taiwan, where most chipmaking is concentrated, and Gelsinger said those fears are why Congress should pass the CHIPS for America Act now.

"The concerns that I have around the geopolitical situation drive the passion and urgency to build this industry in the US," Gelsinger said. "This is a core reason why we are here. We have allowed this industry to shift to Asia. It is time for us to get it back onto American soil."

Back to basics

Senator Baldwin said while she is supportive of the bill, she pointed to concerns about the historically large shareholder buybacks done by Intel and asked the spending plans of Intel, Micron and LAM Research.

"As a supporter of the CHIPS Act, I want to ensure that the federal government gets a proper return on its investment, namely an increase in the domestic semiconductor manufacturing base," she said.

Gelsinger said he ceased Intel's stock buyback purchase program "immediately" upon his return to the company and reiterated Intel's "radical increase" in capital expenditures.

Mehrotra did not mention his view of shareholder buybacks but emphasized that the company is the "global leader" for DRAM and NAND technologies because of its massive investments.

"We have done so by making billions and billions and tens of billions — more than that — in investments over the course of the last few years in leading edge R&D and investments in manufacturing," he said.

Tim Archer, CEO of LAM Research, said his company spends about 90 per cent of its research and development in the US and that it will continue to invest in future development.

"Our priority for the future is just to continue to invest to accelerate innovation in support of the domestic and global semiconductor manufacturing industry in order to try to alleviate many of the global shortages that we've seen in chips that are affecting so many different industries," he opined. ®