Biden administration’s $50 billion to help end chip shortage ‘is a great first step’: Intel CEO

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Intel CEO Pat Gelsinger certainly welcomes the Biden administration’s $50 billion pledge as part of its infrastructure package to help boost U.S. semiconductor production and put an end to the supply shortage roiling industries from autos to appliances

But it should be thought of as more of a downpayment in fixing the issue, suggests Gelsinger. 

“We would say it helps… it’s not enough for the vision I am suggesting,” Gelsinger said on Yahoo Finance Live. “Think about it this way, two and a half decades ago the U.S. industry was 37% of worldwide [chip} capacity. Today that number went from 37% to 12%, and industry analysts say it could go lower than that. It’s something that is so important to every aspect of humanity, everything is becoming more digital. and all that manufacturing for that is being done elsewhere. We have seen the supply disruptions through COVID. We need to stop the decline and start the rise.”

Unprecedented demand for tech gear during the pandemic has led to a rolling chip shortage thus far in 2021. The shortage has caused the likes of Ford to scale back production of popular pickups, while cigarette maker Philip Morris warns about potential out of stocks of e-cigarette devices (which of course, also use a microchip).

For its part, Intel announced in late March a plan to invest $20 billion to build two new factories to increase production in the U.S. Intel will also look to produce chips for other tech companies. Meanwhile, Intel rival Taiwan Semiconductor recently said it would invest $100 billion over three years to boost capacity. 

BARCELONA, CATALONIA, SPAIN - 2019/02/27: The logo of the chip maker Intel is seen during the MWC2019.
The MWC2019 Mobile World Congress opens its doors to showcase the latest news of the manufacturers of smart phones. The presence of devices prepared to manage 5G communications has been the hallmark of this edition. (Photo by Paco Freire/SOPA Images/LightRocket via Getty Images)

BARCELONA, CATALONIA, SPAIN – 2019/02/27: The logo of the chip maker Intel is seen during the MWC2019. The MWC2019 Mobile World Congress opens its doors to showcase the latest news of the manufacturers of smart phones. The presence of devices prepared to manage 5G communications has been the hallmark of this edition. (Photo by Paco Freire/SOPA Images/LightRocket via Getty Images)

“We think the $50 billion [from the administration] is a great first step, and we fully support the Jobs Act,” said Gelsinger. “We are seeing good bipartisan support for the $50 billion in manufacturing. But we believe the need to be bigger than that. And I have suggested our moonshot objective of being back to 30% plus [U.S. chip production]. We believe that’s going to require more than $50 billion. But given the administration and the bipartisan support, this is a great place to start. We are fully behind it and anxious to get the wheels moving.”

‘Building back momentum’

Intel shares fell 6% in Friday trading as investors digested the company’s first quarter earnings and modeled out higher investment spending to build out capacity. Analysts also voiced concern on data sales falling 20% and profit margins falling sharply from a year ago. Gelsinger said the lucrative data center business bottomed in the first quarter. 

Here’s how Intel performed compared to Wall Street estimates for the first quarter:

  • Adjusted Net Sales: $18.57 billion vs. $17.90 billion, unchanged year over year

  • Adjusted Diluted EPS: $1.39 vs. $1.15, down 1% year over year

Gelsinger said he understands the market’s concerns, but promises better days are ahead. 

“I think every quarter in the year we are going to be building back that momentum,” Gelsinger said. “Overall, it’s going to take a little bit. There were bad decisions made in the past, issues we have to work through in our execution. But I will tell you, the energy is back. The passion is back. The excitement is back in our teams. And we believe every quarter this year you are going to see more and more momentum as we get our process and product teams executing.” 

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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