Here’s the latest ‘too big to fail’ company taxpayers might have to save

More than a decade after ‘too big to fail’ became a common and unwelcome phrase in many circles, the U.S. may have received another company with such a label: the American semiconductor giant Intel (NASDAQ: INTC).

Indeed, after losing significant microchip market share and failing to fully keep up with the artificial intelligence (AI) boom – a boom that enabled most of the company’s peers to record staggering growth – INTC has declined 52.50% in the stock market since the start of 2024.

Such a downfall has compelled Washington to begin considering a bailout package, per a November 1 Semafor report. 

The Intel rescue plan: What we know

Still, a possible rescue plan was still more of a contingency plan at press time on November 4 and, arguably, not even a fully-fledged plan.

For example, the authorities could award Intel some $8.5 billion before the end of 2024 but are reportedly simultaneously keen on avoiding lump sum cash payments.

The hesitance to implement such a bailout might stem from the poor aftertaste of American taxpayers saving massive corporations.

Similar historical actions are sometimes seen as particularly negative as, in multiple cases, the same individuals who allowed their companies to need the government to save them remain at the helm decades later.

A prime example of this phenomenon is Jamie Dimon, who became the CEO in 2006 and whose bank, JPMorgan (NYSE: JPM), received $25 billion from taxpayers during the Great Recession.

Elsewhere, several ideas for saving Itel have been suggested, including effectively breaking up the company and having some of its peers – Qualcomm (NASDAQ: QCOM) and Arm Holdings PLC (NASDAQ: ARM) being mentioned by name – take over parts of the business.

Why Intel might be in need of saving

A major reason for Intel’s decline has been the company’s inability to retain a leading position in the industry. 

Though anecdotal, the most illustrative example of the reasons for this trend come in the form of the firm’s worsening reputation as a manufacturer of components for personal computers.

In recent years, it has become exceedingly easy to find instances of gamers or technology enthusiasts warning each other away from buying Intel components and steering them toward Advanced Micro Devices (NASDAQ: AMD) or Nvidia (NASDAQ: NVDA).

This trend can – along with Nvidia’s role in the AI boom – show how CEO Jensen Huang’s NVDA stock wealth became greater than the entire market capitalization of Intel.

Intel has also been hindered in its business by some arguably unprovoked errors. For example, the American giant lost a massive manufacturing discount with Taiwan Semiconductor Manufacturing (NYSE: TSM) due to insensitive comments by the firm’s CEO.

Why Intel’s failure could be a strategic threat for the U.S.

Whatever the situation turns out to be – and whether Intel ends up needing a bailout or not – there is a strong argument for the U.S. government stepping in to protect the company.

With the bulk of semiconductor design and production happening overseas, Intel remains something of a bulwark for America, keeping the cutting-edge industry on its own soil.

Additionally, the potential full reliance on foreign companies would put the U.S. on a back foot as much of the industry is in Taiwan and South Korea, which are, despite their cordial alliance with America, at the very borders of China and the former is even within the People’s Republic’s de jure borders.

Featured image:

Ascannio. New Intel logo seen on the screen and blurred fingertip touching it in a dark. Digital image. Stone UK – September 2 2020. Shutterstock, September 2, 2020. Date retrieved: November 4, 2024.