The U.S. Said It’d Give Billions to Chipmakers. Now Come the Layoffs

When a group of semiconductor companies, including Intel Corp., lobbied Congress to pass the $52 billion chip-stimulus bill earlier this year—one of the biggest federal investments in a private industry—they argued in part that the subsidies and tax breaks would protect American jobs.

But now just months before the funding applications open, the nation’s largest semiconductor company is reportedly planning a major reduction in its workforce—yet could still receive billions in federal subsidies. Thousands of Intel employees are expected to be laid off later this month to cut costs amid a steep decline in demand for PC processors, according to Bloomberg. Some divisions, including sales and marketing, could lose 20% of their staff.

Intel is under intense pressure from investors, as its shares have fallen more than 50% this year. The company posted a net loss of $454 million in the second quarter, compared with a net income gain of $5 billion for the same period a year ago. Analysts are predicting more grim news to come out of the company’s upcoming earnings release, with an expected third-quarter revenue drop of roughly 15%.

Even so, the reported job cuts come at an awkward time for Intel, given that the company lobbied heavily for the subsidies and committed $20 billion to build a manufacturing mega-site on the outskirts of Columbus, Ohio earlier this year. The move also puts Intel chief executive Pat Gelsinger—who received a $179 million compensation package last year—in a difficult position. In December, he lobbied Congress to pass the funding, co-signing a letter to lawmakers that said federal subsidies would be “supporting millions of jobs for Americans.”

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Intel, based in California, declined to comment on the reported layoffs to TIME. The chipmaker had 113,700 employees as of July, and plans to apply for federal funding in February when the Commerce Department starts dispersing subsidies and tax breaks to companies seeking to build factories inside the U.S, an Intel spokesperson said in a statement to TIME on Monday, adding: “We expect the Intel Ohio site to create 3,000 Intel jobs and 7,000 construction jobs.”

But the reported layoffs, which could happen as early as Oct. 27, highlight the perils of promising federal funds to private companies without enough guardrails in place, says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics who has surveyed U.S. industrial policy for over 40 years, including at the Department of Treasury.

“It was certainly foreseeable,” he tells TIME. The Biden administration “could have put in conditions that we’re not going to give grants to companies that are cutting back their capital outlays or firing workers. But there’s nothing like that in the bill.”

How jobs could play a role in funding decisions

Another industry stalwart, the Taiwan Semiconductor Manufacturing Company, also had to cut capital spending this year due to slower global chip demand—particularly for PC processors. TSMC executives said the spending cut was around 10% but did not specify whether there were layoffs.

The U.S. Said It’d Give Billions to Chipmakers. Now Come the Layoffs

The Taiwanese chipmaker is the world’s largest semiconductor manufacturer and has already started building a $12 billion computer-chip factory in Arizona, with plans to hire U.S. engineers to staff the facility. But the pace of construction largely depends on how much in federal subsidies the Commerce Department approves, a Taiwanese minister told The Washington Post in June.

A number of other major chip manufacturers, including GlobalFoundries and Samsung, have also suggested they may apply for funding to build or expand U.S. facilities in February. The Commerce Department said in a Sept. 6 strategy report that it will prioritize “investments in projects that connect workforce training dollars to quality jobs that exceed the local prevailing wage for an industry in the region.”

The Commerce Department declined to comment on how expected layoffs could impact funding decisions but did say that more information on specific guardrails and restrictions will be included in the funding application.

Some members of Congress raised these exact concerns during the negotiation process, including Sen. Bernie Sanders of Vermont, who described the program as a “corporate giveaway.”

“Over the last 20 years, the microchip industry has shut down over 780 manufacturing plants in the United States and eliminated 150,000 American jobs while moving most of its production overseas after receiving over $9.5 billion in government subsidies and loans,” Sanders said in July, before the Senate voted in favor of the bill. “In order to make more profits, these companies took government money and used it to ship good-paying jobs abroad.”

Others say the law will restore American leadership in the semiconductor industry after losing manufacturing to Taiwan and China, where the vast majority of advanced semiconductors and mature nodes are now made. There’s also a national security risk of relying on foreign nationals for chips, especially for military equipment. And the funding program could create millions of jobs, a senior advisor at the Commerce Department told TIME.

“This is not a blank check for companies,” Commerce Secretary Gina Raimondo said at a White House press briefing on Sept. 6. She added that the Commerce Department would use its authority to reclaim the money if recipients “fail to start their project on time, fail to complete their project on time, or fail to meet the commitments that they’ve made.”

Demand for chips could increase again soon

But even if Intel does slash thousands of jobs this month, it’s possible the company hires them back—or hires even more employees—after receiving the federal subsidies, says Bob Johnson, the lead analyst for semiconductor capital spending at Gartner, who has studied the industry for roughly 50 years.

“It’s a question of timing. It takes 18 months to two years to actually get the physical factories in place, during which time the jobs you’re supplying are construction jobs—not fab operators,” he tells TIME.

The overall economy may also start looking better in two years when the factories are built, as semiconductor companies are currently battling excess supply and decreased demand. “It’ll last about a year, and then everything will return to more normal,” Johnson says.

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