There’s something to be said for government investments…

They’re stupid.

Nearly every foray into industrial policy by a government ends up creating serious unintended consequences.

But that doesn’t mean they’ll stop trying.

This latest government go-round involving the tech industry will likely be no different.

Launching a Giveaway Program

Quick story… When global governments shut down the world during the pandemic, the US became painfully aware of just how dependent its economy was on foreign production of certain key materials. One notable dependency was in the semiconductor segment.

The shortage that followed sent shockwaves through multiple industries that relied on access to these tech components.

In the face of this realization, the government did what it does best.

It threw money at the problem.

In 2022 the Biden Administration (in cahoots with the US Congress) passed something called the Chips Act. The White House assured us that this $280 billion handout would:

…accelerate the manufacturing of semiconductors in America, lowering prices on everything from cars to dishwashers. It also will create jobs – good-paying jobs right here in the United States.  It will mean more resilient American supply chains, so we are never so reliant on foreign countries for the critical technologies that we need for American consumers and national security.

In addition to targeting semiconductor manufacturing capability in the US, it would fund R&D in various “leading edge” technologies. (In other words, technologies that don’t have a viable commercial market of their own.)

One of the first to step up to the trough was the former heavyweight champion of the chip industry — Intel.

_{Source: CNBC}

According to the article:

Intel said it would spend its CHIPS Act funds on fabs and research centers in Arizona, Ohio, New Mexico and Oregon. The company previously announced plans to spend $100 billion on U.S. programs and facilities. Intel has announced a plan to catch up in leading-edge manufacturing by 2026.

Intel’s Ohio fab will cost more than $20 billion and Intel said it is expected to start production in 2027 or 2028. Intel is also expanding manufacturing operations in Arizona and New Mexico. Intel says the projects will create jobs for 20,000 people in fab construction and 10,000 people in chip manufacturing.

The company’s stock popped on the news.

Spending Down a Black Hole?

But that was six months ago.  And oh how things have changed.

Early last month, Intel released a disastrous Q2 earnings report. Revenues missed expectations and resulted in a $1.6 billion net loss. EPS came in at $0.02 vs a $0.10 expectation.

The company announced it was suspending the dividend it’s been paying since 1992.

And now rather than creating tens of thousands of jobs, they announced they would be laying off 15,000 beginning this year.

The company’s stock is down over 60% year to date.

Intel Corp. (INTC) Year to Date.

_{Source: Barchart.com}

Intel CEO Pat Gensler said, “Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low.”

That may be the scariest statement of all. 

For all intents and purposes the AI boom has been fueling the market since late 2022. If they’ve missed the bus for the past two years, it’s hard to imagine how they plan to catch up. 

Intel has a bit of a history of being on the wrong side of industry trends. (Like when it opted not to provide Apple with chips for its iPhone.)

There’s always hope to right the ship. (Meta managed to do it after a disastrous investment in the metaverse.) But right now, Intel is nowhere near equipped to spend $100 billion on anything.

And given all this, is this where the government should be spending $20 billion of your money?