Source: Global Times

[Global Times U.S. Correspondent Zhuoran, Global Times Reporter Chen Zishuai, Global Times Special Correspondent Chen Xin, Zhen Xiang] Editor's Note: "President Trump asked Intel CEO Andrew Grove to resign and had a critical meeting with him." Several international media outlets noticed the change in relations between Trump and Intel on the 11th. Last week, Trump posted on social media, citing "conflict of interest" as the reason for asking Grove to "resign immediately," but on the 11th, he praised Grove. American media believe that it is quite "rare" for the U.S. president to attempt to remove the CEO of a publicly traded company, which has injected uncertainty into the currently troubled Intel. The Wall Street Journal said that the dispute between Trump and Intel's CEO is not only about politics, but also a test for the U.S. chip manufacturing industry. This dramatic event has placed Intel, which is performing poorly, in the spotlight, reflecting the anxiety of American society about the continuous decline of the advanced chip manufacturing industry.

On July 24, Intel CEO Andrew Grove said he would slow down the construction progress of the factory in Ohio, USA. (IC photo)

Intel's Decline and American Manufacturing

On August 11, U.S. President Trump posted on a social platform that he had met with Intel's CEO Andrew Grove, saying, "This meeting was very interesting. His success and rise are amazing." Grove will have in-depth exchanges with cabinet members and propose a plan for how the U.S. government can cooperate with Intel to address its loss-making chip manufacturing business.

Intel also stated in a statement, "Earlier today, Mr. Grove met with President Trump and had a candid and constructive discussion on Intel's commitment to strengthening American technology and manufacturing leadership."

Grove left the White House after his meeting with Trump on the 11th. (Visual China)

The Wall Street Journal reported that Intel was once the world's highest valued semiconductor company, but its market value has shrunk by half since early last year. Business units including chip factories contributed about one-third of Intel's revenue last year, but these departments have been in a loss state.

U.S. Fortune magazine stated that Intel's decline began about 20 years ago. At that time, the company made multiple acquisitions in telecommunications and wireless technology. David Yoffe, who served on Intel's board, told Fortune magazine, "All these acquisitions failed. We invested $12 billion, but got zero or negative returns."

Intel also tried to enter the huge mobile market, but failed to succeed in the smartphone chip field. Over time, problems such as poor management became apparent. Due to declining market share, Intel gave up its smartphone chip business. Frequent changes in CEOs could not solve the long-standing series of problems at Intel.

The American Affairs magazine stated that during the first decade of the 21st century, Intel's resources and management focus were shifted to sales and marketing activities aimed at defending its market position. Technological innovation, once considered a hallmark of Intel, was neglected. By 2021, Intel's chip manufacturing technology was two generations behind competitors such as TSMC and Samsung. Now, Intel cannot produce the most advanced chips in its wafer plants and has to send these products to TSMC for production. In June 2023, about 20% to 25% of Intel's silicon wafers were manufactured outside. By April 2024, this proportion had risen to about 30%.

This March, under continued pressure from performance, Intel hired Andrew Grove, a Malaysian-born American of Chinese descent, as CEO. However, there was division within Intel regarding whether to retain the chip manufacturing business. According to a report by The Wall Street Journal, sources said that Intel's chairman, Jerry, proposed to spin off the chip manufacturing business and let companies like NVIDIA and Amazon invest. Jerry also proposed selling the business to TSMC, but this effort failed. Grove believed that the foundry business was crucial for Intel, ensuring that the United States would not rely on companies like TSMC and Samsung.

During the 20 years that Intel lost its competitive edge, other American chip companies gradually exited the advanced chip manufacturing business. Data from the Semiconductor Industry Association showed that in 1990, the U.S. produced 37% of global chips, now it's only 12%. In sharp contrast to the decline of U.S. chip manufacturing, East Asia currently accounts for 75% of global chip manufacturing, with TSMC and Samsung being leading chip manufacturers, and China's chip manufacturing industry is also rapidly developing.

It is still seen as the "hope of the entire village"

Despite its decline, the U.S. public generally believes that Intel is crucial to the United States. Fortune magazine stated that Intel is the only American company with advanced chip manufacturing technology - although it has not produced any advanced chips for eight years. For the past eight years, the fastest chips in the world have been produced in Taiwan and South Korea. That is why the U.S. Congress passed the CHIPS and Science Act. This law came into effect in 2022 and has started allocating funds to chip manufacturers for building new factories and other chip infrastructure. Intel received about $8 billion in subsidies, but these funds are disbursed based on project performance. Gartner analyst Gupta said, "Intel had an excellent opportunity; they received a lot of government subsidies, but failed to execute effectively."

Fortune magazine stated that maintaining the U.S. global dominance requires reliable advanced chips. Former U.S. Commerce Secretary Raimondo stated that chips are "the most important hardware of the 21st century." Although TSMC and Samsung are building more wafer plants in the U.S., analysts believe that these companies will not bring the most advanced technologies to the U.S. Intel is seen as "the only hope."

This is because another American chip manufacturing company, Micron Technology, focuses on memory chip production and is not involved in the competition for advanced logic chips. Other large American chip companies (such as Qualcomm, NVIDIA, AMD) adopt a fabless model, with design as their core business, and produce chips through global foundries.

Four former Intel directors said in a statement to Fortune magazine that the U.S. semiconductor leadership may be shaken, and the country needs a leading chip manufacturer. The statement said that the decline of advanced semiconductor manufacturing in the U.S. has been ongoing for some time, and the previously leading Intel is exiting the competition. Due to a series of wrong decisions, Intel's customers have gradually been lost. These four former Intel directors advocated for establishing a new company to spin off the Intel chip manufacturing department into an independent company. They stated that building a new advanced chip manufacturing plant is the best way to ensure the U.S. and American companies maintain a leading position in artificial intelligence and advanced electronics.

Former Intel Chairman Beryll also wrote in Fortune magazine that Intel is the only U.S. company capable of manufacturing advanced logic chips, so the U.S. needs Intel. He believes that due to price, geopolitical, and supply chain security reasons, Samsung and TSMC's U.S. customers need domestic companies to produce their required main chips. Beryll said that Intel is short of cash and unable to expand capacity. Intel needs around $4 billion in cash to remain competitive, so the U.S. government is unlikely to be the savior of Intel. Beryll believes that the only source of cash for Intel now is its customers, and if eight of them each invest $500 million, Intel has a chance to recover.

The American Affairs magazine stated that the CHIPS and Science Act will expire in 2027, and it is unclear whether the law will be extended. Maintaining leadership in the chip sector is a long-term battle, and funding support for R&D and new wafer plants will be needed in the future. How Intel's chip manufacturing business will obtain long-term funding support appears to be full of challenges and uncertainties.

Tariff Stick Can't Solve the Problem

Last week, Trump stated that he would impose a 100% tariff on imported chips. However, companies that already manufacture chips in the U.S. or have committed to doing so would be exempt from the chip tariff. Obviously, Trump issued this chip tariff threat to promote the development of the U.S. chip manufacturing industry.

However, the Wall Street Journal published an article stating that chip tariffs cannot solve the U.S. chip manufacturing dilemma. The article reported that while chip tariffs seem to encourage companies to manufacture chips in the U.S., in fact, after the previous incentives introduced by the Biden administration, TSMC and Samsung have already started related projects in the U.S. More importantly, the biggest challenge for the U.S. in developing chip manufacturing is high costs, and imposing chip tariffs cannot solve the problem of high manufacturing costs in the U.S. According to data from the Semiconductor Industry Association, the construction and operation cost of a U.S. chip factory over a 10-year period is about 30% higher than in Taiwan, South Korea, and Singapore, and 37%-50% higher than in China.

Because the U.S. chip manufacturing cost is too high, TSMC and Samsung, which have already invested in the U.S., will lack the motivation to expand their chip manufacturing projects if they can enjoy tariff exemptions. Other companies will be scared away by the high costs. TSMC recently disclosed that due to the high cost of the U.S. chip manufacturing project, the company's overall gross margin may decrease by 2 to 3 percentage points in the coming years.

Currently, TSMC's chip manufacturing plant in Arizona, USA, has started operations, but the plant uses the relatively low-cost N4 manufacturing process. If the plant uses the latest N2 process, the cost will further increase. Bernstein investment research institution believes that the overall cost of manufacturing in the U.S. remains high, and the high cost of U.S.-made products will eventually be spread across U.S. consumers and all links in the supply chain.

Alan, a senior advisor at the Center for Strategic and International Studies, stated that the U.S. has been trying to push chip manufacturing back to the U.S.: the Biden administration launched the CHIPS and Science Act, which can be seen as offering a carrot; Trump's threat of chip tariffs is swinging a stick.

The American Affairs magazine stated that tariffs as a policy tool perform poorly in highly globalized key technologies such as chips. If the U.S. government insists on implementing this wrong policy, it is expected that U.S. electronic equipment manufacturers will move overseas. If this stimulates the U.S. to impose tariffs on electronic products, capital-intensive electronic service industries, such as IT cloud services, will also move out of the U.S. to reduce the cost disadvantage.

The New York Times stated that the U.S. is trying to regain more chip capacity to enhance the resilience of its supply chain. But even if the relevant facilities are built in the U.S., chip manufacturing will remain global. U.S. investments - regardless of size - have limited impact on changing the global landscape.

Liang Huai-xin, a researcher at the Institute of National Security and Governance of the University of International Business and Economics, said on the 12th to the Global Times that the Trump administration's tariff war is actually a behavior against the laws of economic development. The high tariffs and the desire to revitalize the U.S. chip manufacturing industry do not have a feasible path, and will further lead to large U.S. chip companies being marginalized in the international chip industry. Facts will prove that to occupy a favorable position in the global chip industry, it should be based on innovation, efficiency, and openness, not on sanctions and tariff barriers.

While the Trump administration is pushing efforts to promote U.S. chip manufacturing, Intel's position is very awkward. In March this year, Intel again announced the delay of two new chip factory projects in the U.S. In July, Intel stated that if the company's latest chip process could not find external collaboration customers, it would have to exit the advanced chip manufacturing business. Reuters directly pointed out that if Intel really loses access to advanced chip manufacturing, it would be a major historical turning point.

Original: https://www.toutiao.com/article/7537833599450857999/

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