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INTEL’S $3.5 BILLION BOONDOGGLE  
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Austin Ahlman
March 8, 2024
The American Prospect
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_ The microchip giant’s ‘secure enclave’ project will take
nearly 10 percent of a CHIPS Act manufacturing fund that is already
stretched thin. _

Intel has only recently moved to expand its domestic fabrication
operations to a globally competitive scale, largely in response to
expected CHIPS Act funding., Jakub Porzycki/NurPhoto via AP

 

With Congress hurtling toward an end-of-week deadline to avert a
partial government shutdown, lawmakers are racing to pass
appropriations to keep the government open. The House passed its
“minibus” legislation containing half of fiscal year 2024’s
appropriations Wednesday, and the Senate is set to follow suit today.
Another minibus is expected by March 22, the second partial shutdown
deadline.

The rushed appropriations package, which was only released last Sunday
night, has led to a familiar scenario on Capitol Hill: lawmakers
rushing to review and vote on hundreds of pages of bill text riddled
with obscure and often unexpected provisions. The scramble has created
an opportunity for committee heads and appropriators to stash a number
of controversial policies in the legislation. As the _Prospect_
reported
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earlier this week, one such provision would slash a fifth of the
funding for the Department of Justice’s Antitrust Division as the
agency prepares to take on several major cases in the coming year.

But the cut to antitrust enforcement is not the only threat the
appropriations package poses to President Biden’s pro-competition
agenda. As _Bloomberg_ first reported
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Wednesday, the package also includes $3.5 billion over three years for
microchip giant Intel to create a “secure enclave” facility that
would exclusively produce highly sensitive microchips for the U.S.
military. Instead of providing new funding for the facility, the bill
pulls the money from the $39 billion allocated for manufacturing
grants by the 2022 CHIPS and Science Act (commonly referred to as the
CHIPS Act). Experts and congressional sources say the move threatens
to further strain a fund that is already much too small to meet the
needs of U.S. semiconductor manufacturers.

“My first reaction is to emphasize that this is nearly 10 percent of
the entire CHIPS Act fund,” Charles Wessner, a senior adviser at the
Center for Strategic and International Studies and research professor
at Georgetown University, told the _Prospect_. “And by doing this,
that will necessarily foreclose other opportunities.”

While the United States has several leading chip design
companies—Intel first and foremost—the CHIPS Act’s primary
purpose was to provide funding to onshore the actual fabrication of
microchips, a part of the industry that is currently dominated by
Taiwan’s TSMC and South Korea’s Samsung. (Both companies are
angling for their own slice of the grant funds to expand their
operations in the United States; TSMC is building a fab in Arizona
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Intel has only recently moved to expand its domestic fabrication
operations to a globally competitive scale, largely in response to
expected CHIPS Act funding.

The Department of Commerce, which oversees the funds, has begun slowly
rolling out
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its initial awards to domestic chip manufacturers, naming BAE Systems
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Microchip Technology
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and GlobalFoundries
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as its first three confirmed awardees. Despite reports
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indicating Intel is set to receive the lion’s share of the available
funding with a package worth over $10 billion, the corporation is
reportedly still in tough negotiations with the Department of Commerce
for more. In a sign the company is playing hardball, it indicated
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last month that it plans to slow its expansion of its Ohio
manufacturing plant, citing dissatisfaction with the rollout of CHIPS
funds as part of its reasoning. If Intel’s package expands any
further, it is unlikely the department will be able to adequately fund
several other promising proposals. Commerce Secretary Gina Raimondo
has indicated
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that the funding requests the department has received are for twice
the available funds—with many more expected to continue rolling in.

The secure enclave earmark for Intel in the appropriations package
drains that available CHIPS funding even further. And it is far from
clear that the facility is a worthwhile investment. Two congressional
staffers, who were granted anonymity to speak openly about the
jockeying over the funds, told the _Prospect_ that the Department of
Defense—the sole customer for the chips Intel is set to produce,
aside from a tiny amount meant for intelligence agencies—has not
requested the creation of a secure enclave facility. In fact, there is
reason to believe the Pentagon actively opposes the plan.

One of those congressional aides instead described the funding as a
solution in search of a problem. “We have systems for getting the
military the sensitive chips it needs,” they said, referring to an
accreditation process already in place within the Department of
Defense and emerging innovations that make it possible to assess the
integrity of a chip at various stages of the production life cycle.
“We could be investing more in modernizing technologies we already
have to make it easier and more secure for any supplier to build these
chips.”

The aide claims the push for a secure enclave facility began in 2021
with a report from U.S. intelligence agencies that described an
unknown risk requiring heightened security at the fabrication
stage—the stage of chip production the secure enclave method is
primarily designed to protect. While the intelligence committees in
both chambers are said to have communicated the report’s conclusion
to other relevant committees, the justification for its findings has
not been widely dispersed, even to members of the House and Senate
Armed Services Committees, many of whom only became aware of the
secure enclave project provisions mere hours before the appropriations
package text was released this weekend.

Representatives of both chambers’ Intelligence Committee chairs,
Rep. Mike Turner (R-OH) and Sen. Mark Warner (D-VA), did not respond
to a request to comment for this article. (Conspicuously, the top two
Republicans on the House Intelligence Committee, Turner and Rep. Brad
Wenstrup, both hail from Ohio, where Intel has recently slowed its
expansion plans.)

Further complicating matters, the alleged conclusion of the mysterious
intelligence report was contradicted by a report on current and
emerging chip security models from the Air Force last August, which
claimed that fabrication is the stage in the production process where
microchips face the _lowest_ security risk. (The secure enclave will
potentially bring testing and packaging in-house as well, production
stages that are deemed higher-risk.) The report
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on to specifically say “we need to invest less [in fabrication
protections],” and claims that the economics of the highly sensitive
chip market—which accounts for an estimated 2 percent of the total
U.S. semiconductor marketplace—make it so the Department of Defense
“cannot maintain dedicated facilities.” It also emphasizes that it
is in the department’s “interest to have access to multiple
sources of microelectronics components for resiliency and cost
competitiveness.”

The congressional aide who highlighted the conflicting reports
indicated that, by siphoning such a large portion of the funds meant
to boost domestic manufacturing capacity, the mandate to fund the
secure enclave project stands to make the goal of diversifying the
supply chain for sensitive chips much more difficult. The hefty price
tag to maintain the facility over time is also likely to create an
incentive structure for the Department of Defense to source as many
chips as possible from the facility, so as to justify the expense. The
aide suggested the ongoing dispute may have been a factor in why CHIPS
grant announcements have been slower to materialize than many
observers anticipated.

It is unclear which of the conflicting risk assessments the Department
of Commerce finds more credible. _The Wall Street Journal_ reported
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in November that the funding for the secure enclave project was set to
be approved through Commerce’s grant disbursement process, which
would have made specific direction from Congress unnecessary. The
report also noted that Sens. Maria Cantwell (D-WA), Roger Wicker
(R-MS), and Jack Reed (D-RI) sent a letter to Commerce questioning the
Intel facility, on grounds similar to those laid out in the Department
of the Air Force’s report. The sudden move by appropriators to
mandate funding for the project indicates that Commerce, which has
been consulting with the Pentagon in its distribution of grant funds,
may have had second thoughts.

It is also unclear if or how the secure enclave funding might impact
the grants Commerce has already announced but not finalized for
Intel’s competitors BAE Systems and GlobalFoundries, both of which
are key parts of the defense microchip supply chain. The Department of
Commerce, which did not immediately respond to a request to comment
for this article, told Bloomberg it is “still reviewing the effect
of the appropriations text on the program.”

The second minibus package, which includes appropriations for defense
and like the first is currently taking shape behind closed doors,
presents an obvious opportunity for Congress to undo the mandate and
return the decision over how to allocate grant money to the Department
of Commerce. At the very least, the package could allocate new funds
to support the project, or redirect money from other parts of the
Pentagon’s hefty budget to backfill the hole it leaves in the CHIPS
Act manufacturing grant pot. But if legislators truly want to advance
their goals of building out domestic microchip manufacturing capacity,
they need to go a step further and expand, not commandeer, the fund.

“Congress is going to learn very quickly that $39 billion isn’t a
lot of money in the microchip world,” Wessner said, pointing out
that China has spent many multiples of that amount in the last decade.
“[The $39 billion] can’t be a one and done. We have to have a
regular flow of resources, or we can’t compete. Period.”

Austin Ahlman is a reporter and researcher with the Open Markets
Institute’s Center for Journalism & Liberty, where he writes about
the intersection of corporate power, public policy, and politics.

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