Intel is in the lead to receive billions for secure defense chips

Tue Apr 09 2024
Ramesh Sridharan (917 articles)
Intel is in the lead to receive billions for secure defense chips

Intel is a strong contender for receiving substantial government funding for secure facilities that manufacture microchips for U.S. military and intelligence purposes.

The undisclosed facilities would be explicitly designated as a “secure enclave,” according to individuals familiar with the development. The objective is to decrease the reliance of the U.S. military on chips imported from East Asia, specifically Taiwan, as there are concerns about its vulnerability to Chinese invasion.

According to sources, the operation could potentially be located at Intel’s Arizona factory complex, thanks to the funding provided by the Biden administration’s $53 billion Chips Act passed last year.

The program’s plan showcases Washington’s active engagement in the private industry to ensure a steady supply of chips, which are now recognized as crucial for geopolitical power and military strength. Chips play a crucial role in artificial intelligence, espionage, and cyberwarfare, as well as being prominently featured in state-of-the-art jet fighters, missiles, and other advanced weaponry.

The Biden administration has not yet specified the precise amount of funding that will be made available. According to sources, the estimated cost of the facilities ranges from $3 billion to $4 billion. The funding for these projects is expected to be sourced from the $39 billion manufacturing grants authorized under the Chips Act.

Enhancing the stability of domestic chip supplies is a key focus of the Chips Act, as highlighted by Commerce Secretary Gina Raimondo earlier this year as a crucial investment for national security. An agreement was signed this summer between the Defense Department and the Commerce Department, granting the former access to the chip-project funding plans. The Wall Street Journal obtained a copy of the document, revealing these details.

Officials from the Commerce Department, the Office of the Director of National Intelligence, and the Department of Defense are currently in negotiations with Intel. However, a final decision has not yet been made, as reported by individuals familiar with the discussions.

The Department of Commerce has announced that the CHIPS Program Office will soon start allocating manufacturing grants for domestic chip projects. The program has gained significant popularity. There has been significant interest from over 500 entities, with more than 130 submitting applications or pre-applications for funding.

Intel stands to gain significantly. Furthermore, the company is well-positioned to potentially secure substantial grants to support the construction of its new factories in the United States, specifically in Ohio and Arizona. Intel CEO Patrick Gelsinger, along with other tech leaders, has had several meetings with Raimondo.

Intel chose not to provide any comments regarding the secure-enclave project. The Commerce Department declined to comment, according to a spokeswoman. The Defense Department spokesman redirected the question to the Commerce Department.

Rival chip makers and certain lawmakers have expressed concerns about the proposed facility. Concerns arise regarding the potential impact of substantial grants awarded to Intel on the availability of funding for other companies.

Certain legislators are raising doubts about the necessity of a secure enclave, advocating for a method in which security checks are conducted at various stages of chip manufacturing without the need for dedicated facilities for the defense sector. According to insiders, the design and location of the secure enclave will be influenced by the requirement for recipient facilities to be commercially viable, as mandated by the Chips Act.

In a recent letter to Raimondo, three senators raised concerns about the cost of constructing a new facility solely for defense purposes. They pointed to a recent Defense Department review, which concluded that security risks were minimal during the chip fabrication stage.

The [department]’s potential decision to award a contract to a single company for building a secure enclave at a significantly higher cost than the traditional method of securing the chip supply chain for defense customers has raised concerns, according to a letter obtained by The Wall Street Journal. By taking such action, the allocation of funds would be restricted for other initiatives aimed at establishing a varied domestic supplier network for semiconductors, which is crucial for the defense industrial base.

The letter was signed by Jack Reed, a Rhode Island Democrat and chairman of the Armed Services Committee; Roger Wicker from Mississippi, his Republican counterpart on the committee; and Maria Cantwell, a Washington Democrat who chairs the Senate Commerce Committee.

There are differing opinions on this matter. According to Sen. Marco Rubio (R., Fla.), the Chips Act grants authorization for secure manufacturing capacities. He also mentioned that the military and the intelligence community highly recommend adopting a “secure enclave” approach. In a statement, he expressed concern that efforts to overturn the decision could potentially jeopardize our country’s security.

Special facilities for the defense industry may face challenges in generating sufficient revenue, as the sector only accounts for approximately 2% of the total chip market. Defense customers frequently have unique requirements, such as safeguarding chips for applications in high-temperature settings or outer space.

According to Charles Wessner, a senior adviser for the Center for Strategic and International Studies, the role of demand and performance has shifted, making them less influential. Wessner also believes that constructing a dedicated fabrication facility for defense purposes would be prohibitively costly.

The Chips Act seeks to enhance the domestic supply of chips to meet defense requirements and fuel advanced chips for high-tech consumer and business products. The program provided $2 billion to the Defense Department for the establishment of a national research and development network focused on semiconductor technologies. In September, the department allocated a portion of the funding for regional programs.

In July, the Commerce and Defense departments signed an agreement to collaborate closely in order to strengthen the domestic semiconductor defense industrial base, further enhancing the role of defense officials in distributing the Chips Act fund. They reached an agreement to work together on exploring the possible investment opportunities related to their allocated funds from the Chips Act.

Intel has collaborated with the defense department on various programs, including RAMP-C. This initiative involves the development of cutting-edge chip manufacturing in partnership with companies like Boeing, Northrop Grumman, and Nvidia.

Ramesh Sridharan

Ramesh Sridharan

Ramesh Sridharan is our Stock Market Correspondent covering events and daily movements of stock markets in Asia. He is based in Mumbai