When a President is elected and begins setting their administration's agenda, numerous business luminaries voice their opinions about what the new leader needs to do. This week, Intel (NASDAQ:INTC) CEO Bob Swan wrote an open letter to the incoming Biden administration, offering his recommendations regarding U.S. technology investment.
No surprise here: Intel wants the government to increasingly foot the bill in the competitive technology races with other nations. Intel wouldn't be the only company to benefit; a slew of other tech and semiconductor companies that would gain as well if Biden took up Swan's offer.
Invest in U.S. semiconductor manufacturing
Perhaps Swan's most consequential request is for the U.S. government to invest more in its own semiconductor manufacturing capacity. Swan writes:
According to the Semiconductor Industry Association, the U.S. accounts for just 12% of global semiconductor production capacity, with more than 80% taking place in Asia. Rising costs and foreign government subsidies to national champions are a significant disadvantage for U.S. semiconductor companies that make substantial capital investments domestically. A national manufacturing strategy, including investment by the U.S. government in the domestic semiconductor industry, is critical to ensure American companies compete on a level playing field and lead the next generation of innovative technology.
With leading-edge semiconductors now a critical national security issue, and with the U.S. now perhaps looking to bring back more manufacturing to its shores after years of outsourcing to lower-cost countries, this concern is not new. In fact, the U.S. just paid one of Intel's main rivals, Taiwan Semiconductor Manufacturing (NYSE:TSM), to build a $12 billion plant in Arizona.
Of course, that's actually because Taiwan Semi has surged ahead of Intel in terms of making semiconductors on the leading-edge node. While Taiwan is certainly an ally, current Taiwan-China tensions make that supply not quite as reliable as having a Taiwan Semiconductor manufacturing plant on U.S. soil.
Intel wants some of that federal generosity, too. Intel has three manufacturing plants in the U.S., where it makes most of its processors. It has some overseas capacity as well. Swan appears to be arguing that as one of the few U.S. manufacturers, Intel deserves a break from the higher relative costs it incurs to make its chips.
Of course, if Intel hadn't screwed up its process for making 10nm chips last year and then its 7nm chips this year, the company might not be in such a disadvantaged position right now.
These companies, not Intel, could benefit the most
If the U.S. wants its fair share of semiconductor manufacturing capacity, it might need to build extra strategic capacity. If every country wants to have its own strategic chipmaking capacity, that could mean more global chip supply than demand on an ongoing basis.
That would be music to the ears of semiconductor equipment manufacturers, including U.S.-based companies Applied Materials (NASDAQ:AMAT), Lam Research (NASDAQ:LRCX), KLA Corporation (NASDAQ:KLAC), European-based ASML Holdings (NASDAQ:ASML), and Japan's Tokyo Electron (OTC: TOELY).
Those stocks have already surged a lot in November, as the prospect of lower tensions with China has renewed enthusiasm. Should the Biden administration adopt the SIA's recommendations of a $50 billion investment to build another 19 U.S. wafer fabrication plants, there could be another leg up from these levels.
Of course, investment into physical U.S. manufacturing fabs wasn't Swan's only request. Swan also encouraged federal investment in smart infrastructure and energy systems to battle climate change, 5G communications infrastructure to make business more efficient, and STEM education to develop a 21st-century workforce.
The fate of Intel's stock will depend less on any specific federal policy and more on resolving its manufacturing problems. As is the case with many stocks, federal policies matter far less than the business cycle, management's execution, and how the world recovers from the coronavirus.