Department of Defense taps Intel to lead long-term semiconductor strategy

The news: Intel will lead a US Department of Defense (DOD) effort to accelerate domestic semiconductor chip production amid a global reshuffling of semiconductor supply chains, according to The Wall Street Journal.

• The US semiconductor giant, in partnership with IBM, Synopsys, and Cadence Design Systems, will lead the Rapid Assured Microelectronics Prototypes – Commercial (RAMP-C) program to “establish a domestic commercial foundry ecosystem,” per Intel.
• Through the Pentagon deal, chip production resulting from RAMP-C will be available for use both by the military and commercial foundry customers.
• Intel’s president of Intel Foundry Services, Randhir Thakur, said RAMP-C’s injection of new semiconductors into the US economy will help the US maintain its position as a global leader in chip research, development, manufacturing.

How we got here: Continued fallout from the global chip shortage has led countries worldwide to reconsider their dependence on traditional global supply chains and invest in domestic chip production instead.

• Earlier this year, the European Commission challenged member states to produce about 20% of the world’s chips by value by 2030, as part of its Digital Compass plan.
• Outside of the DOD’s efforts, the US Senate recently passed a bill to invest nearly $250 billion in US manufacturing to reduce dependencies on foreign chips and other components, particularly those from China.
• And China has also been busy ramping up local chip production, with recent reports showing its integrated circuit production rose 41.3% year-on-year (YoY) to more than 31 billion units.

Good news for Intel: The Pentagon’s selection comes at just the right time for the company, which recently lost its mantle as the No. 1 global chipmaker by revenues for the first time in 25 years.

• Intel was overtaken by Samsung, thanks in part to a shift away from PC processors toward Samsung’s widely diversified product mix of RAM, SSD storage, and mobile chipsets.
• Meanwhile, some of Intel’s most prominent customers, like Apple, Microsoft, and Lenovo, are designing their own in-house chips.

The bigger picture: Though Intel’s partnership with the Pentagon may help US production in the long term (and will no doubt help Intel), it’s unlikely to do much to ameliorate the immediate effects of the global chip shortage.

• Though Intel recently announced it was investing $20 billion into two Arizona chip fabs, they aren’t expected to start production until 2024.
• In the meantime, the shortage—which has wreaked havoc on everything from consumer electronics to US pickup trucks—rages on, with some estimates suggesting it could stretch into 2023.