Uncle Sam to become Intel’s biggest shareholder

0:00I'm Hugh MacArthur, chairman of Bain & Company's Global Private Equity Practice and host of Dry Powder, a podcast where I sit down with some of private equity's leading investors, such as TPG's Jim Coulter.

0:10Michael Strain: Somehow the industry keeps growing. KKR's Pete Stavros. Driving operational change is really hard. And Vista's Robert Smith. As a market dampened, guess what? We were able to monetize 18 companies. And of course, I'll take you behind the scenes of Bain's latest research, including our newly released mid-year private equity report. Subscribe to Dry Powder today.

0:34Michael Strain: On Monday, U.S. Commerce Secretary Howard Lutnick published an interesting video on the social media site X.

0:40Richard Waters: Sitting with Lip Boo in my office, and at three o 'clock, we're going to sign the document together.

0:46Michael Strain: Sitting next to Lutnick is Lip Boo Tan. He's the CEO of Intel, the American electronics firm. They're both smiling on a couch in a big wood panel room.

0:56Richard Waters: Where the United States of America will own 9.9 % of the great American technology company, Intel.

1:04Michael Strain: They're celebrating big news for the Trump administration. And we agreed together.

1:09Richard Waters: And then you went to your board of directors. Yes. And they agreed.

1:13Michael Strain: Yes.

1:14Richard Waters: It's a giant public company, so it had to be fair. Yes. It had to be fair. It had to be fair. There's no other way.

1:19Michael Strain: Now, the deal isn't done yet, but this move by the U.S. government to own part of a company is pretty remarkable for a Republican party that historically was all about a small government staying out of big business. But Secretary Lutnick says intel is just the start.

1:43Michael Strain: This is Swamp Notes, the weekly podcast from the Financial Times, where we talk about all of the things happening in U.S. politics, finance and the economy. I'm Mark Filippino, and this week we're asking, why does the Trump administration want to buy up corporate stock? Here with me to discuss is Richard Waters. He's the FT's tech writer at large. Hey, Richard. Hey, Mark.

2:02Richard Waters: Good to talk to you again.

2:03Michael Strain: Good to have you back. And we've also got Michael Strain, the Director of Economic Policy Studies at the American Enterprise Institute. Good to have you, Mike. Great to be with you. In one sentence, how would you describe your reaction to the announcement about the Trump administration acquiring 10 % of intel? Mike, why don't you go first? Um, in one sentence, I was deeply troubled and shocked. Deeply troubled and shocked. I cannot wait to dive into that. Richard, what about you? What were your thoughts?

2:35Richard Waters: Well, you know, I think I think shocked and not shocked. We'd already seen Trump take 15 percent of NVIDIA's sales to China for no reason. Just, you know, I can I can do a deal here. I can I can get a slice of the action. why not? And we've seen the same thing again. He's just kind of stepped in and said, I can get a chunk of this company for the taxpayer for nothing.

2:59Michael Strain: Great. All right. So, Richard, I think it's important for us to get a little bit of background on this because it is shocking in a sense that we do not see the government, the federal government, at least the American federal government, dipping into companies, helping them out the way that it did. Why is it helping Intel right now? How bad are they struggling?

3:15Richard Waters: So the government was already helping Intel. It had already committed nearly$10 billion of grants under the Chips Act. That was the Biden-era Act, because Intel is trying to recover as a manufacturer. You know, we all know about the greatness of NVIDIA and U.S. chip companies, but the one thing that U.S. companies don't do is manufacture their own products. And the question is, for the U.S., the strategic question is simply, do you need to have advanced chips made in the U.S.? And if you can't get the latest and greatest there, it means that people won't have phones that are, say, great all the time.

3:56Richard Waters: It means that AI will cost more and advances will be slower. and this will be a drag on the economy and potentially on national security. So that's what's potentially at stake here. And so that was the idea of the grants. Trump has never liked those grants. He never liked the idea. He's always complained about giving money away like this. And so he stepped in and said, look, we don't just have to give that money to Intel. Let's get something back for the taxpayer. You know, I'm going to get 10 % of this company. And that's kind of essentially what's happened here.

4:28Michael Strain: Richard, I'm not going to lie. I was a little surprised to see this deal go down? Because just weeks prior to this announcement, Trump told Intel CEO Lipp Bouton to resign.

4:38Richard Waters: Yeah, so I think Lipp Bouton let his guard down. He's only been the CEO since, I think, March this year, very recently. He hadn't covered his bases in Washington. And for a company that is so dependent on government money at that point, he really needed to cover that base. And I think he left himself exposed. And he's done amazing things for China's chip industry, just as a venture investor. It's led to some complaints and criticism of him. And Trump jumped on the back of that and said, you haven't come to me. You haven't come to ask for anything. You haven't come down to bow down before me, essentially.

5:17Richard Waters: We're giving you all this money. So guess what? About three days after Trump said that on Truth Social, Tan was in front of him. He was in the Oval Office saying, let's do a deal. I mean, that's essentially what happened. And this 10 % stake came seen after.

5:34Michael Strain: Mike, putting aside your feelings that this is a troubling deal, what is the administration hoping the acquisition will do? Well, I think that's not clear. I mean, I agree with Richard that President Trump viewed this very transactionally. and was uncomfortable with the CHIPS Act subsidies and wanted to, you know, quote unquote, get more out of it for him or for the government or for the taxpayer or whoever. I mean, I think the hope obviously is that this will somehow help Intel to get back on track. But there's no real mechanism by which that outcome would be affected. And I think what do you mean?

6:12Michael Strain: What is lacking here in order for it to be effective? Well, like when the Obama administration during the financial crisis had a lot of control over General Motors, it pushed through a whole bunch of reforms to help make GM a more successful company. And it doesn't seem, at least so far, that President Trump or Secretary Lutnik or really anybody involved is thinking about some sort of wholesale transformation or restructuring or anything like that. In fact, what you're hearing is quite the opposite, that the U.S. won't have a seat on the board and the U.S. won't be telling the company what to do and all that sort of stuff.

6:56Michael Strain: I think those are kind of absurd assertions, but they are the assertions that are being made. Is there any upside for Intel here, Mike, Richard?

7:06Richard Waters: I'll say two things. One is just financially, it at least locks in that government money because there was always a risk that Trump was going to somehow get in the way of paying those grants. Now it's an upfront equity investment. At least the money is locked in. And then the second thing, and I think very much as Mike was saying there, where's the strategic benefit? it, there's a signal that goes out to the market here that the government is a strategic investor in this company and therefore somehow has more skin in the game. That's what people are hearing. But I agree with Mike. I mean, there's nothing around it.

7:40Richard Waters: There's no framework around this. I think it's, like Mike, I think it's a transaction. I don't think there's a strategy. The strategy is just, you know, yeah, we'd like a big chip maker in the US, but I don't think Is anything else around this that helps that?

7:54Michael Strain: I think it really depends on the time horizon about which you're asking. And so, you know, in the near term, I mean, Intel's share price pop. That's a good thing for Intel. There are companies that need to purchase chips. And you're hearing rumors that they're looking a little more favorably at Intel to supply them with the chips they need. Maybe Intel gets some contracts. But I think over the medium term and the long term, I think this is very likely to be a bad deal for Intel. It's going to make Intel subject to all sorts of political whims that are going to make it harder for them to make needed changes in order to stay competitive.

8:36Michael Strain: You know, there are reports that some of Intel's competitors like TSMC are thinking about giving back all the Chips Act money that they've gotten in order to make it harder for President Trump to, you know, do to TSMC what he did to Intel. I think over the medium to long term, that's just going to make TSMC a more competitive, more profitable, more successful company. It's going to make Intel a less competitive, less profitable, less successful company. And that's in Taiwan. It's the Taiwan Semiconductor Manufacturing Company for all of you playing at home.

9:09Richard Waters: It is. I mean, Mike, just to focus on that short term, though, it is all about the short term for Intel right now. And that question of contracts you mentioned is absolutely central because, you know, the new CEOs come along and said, we're not going to spend tens of billions of dollars to build all these new factories in the U.S. if we can't get a couple of big anchor customers, an Apple or an NVIDIA or one of these really big US companies needs to come and say, look, we want to have our chips made by Intel. So if the government appearing, you know, as a strategic investor, encourages other companies to think, well, you know, maybe Intel is going to be here for the long term.

9:49Richard Waters: Maybe I can trust them. And if that makes the difference and tips the balance and they do go and place some of those contracts, you know, that is a huge moment. I mean, that would be a very big win for Intel and for the U.S. if it happened. But these are big gifts. I don't see NVIDIA that's been very wary of Intel's manufacturing just turning around and saying, well, you know, because of what Trump's done yesterday, I think I'll go and place, you know, I'll stake the future of my company on Intel's manufacturing plants. I think that's a real stretch. But it is absolutely the key question right now.

10:23Michael Strain: We're talking about Intel and its importance. And I've got this question kind of rumbling around in my head. Let me try and articulate it because I'm having a hard time getting it out. But, you know, if we're talking about what the U.S. government is doing to help American companies, we think about what happened earlier this year with the U.S. steel merger and Nippon Steel, where the Trump administration negotiated a golden share in order to approve the deal. So it's a little bit similar to what we're talking about with Intel. Going back to GM, Mike, that was an extraordinary case where the TARP program, the Troubled Asset Relief Program, helped General Motors, which the government argued was absolutely crucial to survive for the American economy.

11:08Michael Strain: Is it fair to compare these moments? And if we are, why are we seeing this happen with companies like Intel and U.S. Steel? I think it's fair to compare them as a way to criticize what the Trump administration and what President Trump himself have been doing. So the assertion that what the president has done is unprecedented really does have to contend with what the U.S. government did following the 2008 financial crisis, where the government used taxpayer money to purchase a bunch of assets, to take ownership stakes in companies, to bail out the automakers. Those actions all took place in a crisis and those actions were all designed to be temporary.

11:51Michael Strain: And I think those are two really important distinguishing features between what Presidents Bush and Obama did and what President Trump is doing. What Mr. Trump is doing is certainly not designed to be temporary. There is no economic crisis. I do think that many politicians and some members of the national security community would argue that TSMC's exposure to China creates a national security crisis for the United States, given our dependence on Taiwan for leading edge chips. You know, here, though, I have a lot of skepticism for two reasons. The first is that the Trump administration is invoking national security quite a bit.

12:39Michael Strain: If you look at NVIDIA and AMD, who want to sell leading edge AI chips to China, they were told they couldn't for national security concerns. Then President Trump cut a deal with them to get 15 percent of the revenue from those sales. Now, all of a sudden, national security is in an issue. I think that that really does suggest quite strongly that President Trump is using the rhetoric of national security as a thin fig leaf for rank corporate shakedowns. We just saw one this week with Orsted, right? The Danish wind farm company that was very close to finishing a massive project that they slammed the brakes on for what they called national security reasons without expanding on it.

13:31Michael Strain: Yeah, exactly. The second reason that I'm skeptical of the national security justification is that the most optimistic forecasts for the CHIPS Act are that the U.S. would be producing 28 percent of leading edge chips by 2032. The Biden administration would always talk about 20 percent of leading edge chips. So the actual number is probably less than that. I suspect that if we lost access to 85 percent of cutting edge chips, that would throw the U.S. into an extremely severe crisis. And so if we really are concerned about security, we shouldn't be so heavily focused on Intel, a company that is very troubled and that has a multi-year history at this point of performing poorly.

14:22Michael Strain: Instead, we should be working with our allies to help locate this productive activity wherever in the world it makes the most sense so that manufacturers can ramp up production, not 20 % or 28%, but let's get like 50 % or 60 % or something like that in parts of the world that may or may not include swing states in U.S. presidential elections, but that aren't exposed to Chinese aggression in the way that Taiwan is. All right, guys, hang on. because we're going to zoom out to a larger philosophical conversation about the free market economy. I know that you guys were just like chomping at the bit to get here.

15:01Michael Strain: But Republican Senator Rand Paul, who has been critical of Trump in the past, called this deal, quote, step towards socialism. Michael, do those criticisms ring true to you? I don't think it's a step toward socialism. I think the argument that it's a step toward state capitalism is a stronger argument than that it's a step toward socialism. Now, maybe state capitalism is itself a step on the path of socialism. I think instead what we are seeing is an unthoughtful, unstrategic, opportunistic shakedown of corporations in one-off circumstances. I want to leave you with this question. Secretary of Commerce Howard Lutnick this week said the Trump administration is looking at taking a stake in U.S.

15:54Michael Strain: defense contractors like Lockheed Martin. If this is really something they're serious about, what does that future look like for business in America? I think if this grows legs, as Secretary Lutnick indicates it might, and all of a sudden the government is saying, whoa, Lockheed Martin, a lot of their business comes from the U.S. government, we should have some control there. Or, whoa, Boeing, you know, they get a lot of money from the Export-Import Bank. You know, why doesn't the U.S. government have an equity stake? You know, then I think we are seeing the U.S. move toward a model of state capitalism that other countries have tried and that really has not worked in other countries and that won't work here.

16:42Michael Strain: I'm a little skeptical that we'll see that. I think, again, what we're seeing is president trump in the room with the ceo of nvidia or the ceo of intel you know trying to make what he thinks is is a great deal and i don't think he he's thinking more broadly than that richard what do you think i mean from the tech side you see a lot of tech companies get interfered with from the federal government mostly you know on the federal trade commission side of things but like what what is the big takeaway for you and intel i think it's absolutely fascinating that

17:16Richard Waters: that so many of these companies, you know, traditionally Silicon Valley has relied on government money, on government contracts. It's supported the US tech industry, even though, you know, they wouldn't want to tell you that, but that's been the story. And so now it seems that the more strategic and the more dependent on government you are, the, you know, the more at risk you are. And so companies now, every boardroom is now going to be saying, how do we position ourselves at the White House that we are in the right place where I'm not going to get a sideswipe from Donald Trump on Truth Social, but I'm not going to go in there and give up a piece of the action.

17:55Richard Waters: And so government relations has never earned its money as well as it will in the next few months, because, you know, this is what it's all about now. And I think, you know, those strategic sectors that rely on government, those are the ones most at risk. And it's going to be hard. You know, if you're in, if the spotlight falls on you, you know, how do you resist this?

18:17Michael Strain: I want to thank our guests. Richard Waters is the FT's tech writer at large. Thanks so much, Richard.

18:22Richard Waters: Yeah, it's been great to talk to you.

18:24Michael Strain: And Michael Strain, he's director of economic policy studies at the American Enterprise Institute. Thanks, Mike. Thank you very much. All right, we're going to take a quick break. And when we come back, we're going to do exit poll. This week is all about growing tensions with Venezuela.

18:51Michael Strain: I'm Huma Carther, chairman of Bain & Company's global private equity practice and host of Dry Powder, a podcast where I sit down with some of private equity's leading investors, such as TPG's Jim Coulter. Somehow the industry keeps growing. KKR's Pete Stavros. Driving operational change is really hard. And Vista's Robert Smith. As a market dampened, guess what? we were able to monetize 18 companies. And of course, I'll take you behind the scenes of Bain's latest research, including our newly released mid-year private equity report. Subscribe to Dry Powder today.

19:23Michael Strain: We are back with Exit Poll, where we ask an FT journalist one of your questions. This week, we have Michael Stott, the FT's Latin America editor. Hey, Michael. Hi. Michael, I'm going to play this question we got from Gustavo in Lisbon. Let's hear it. Hi, Mark. This is Gustavo from Lisbon, although originally from Venezuela. I'd like to know what is the opinion if the Trump administration is going to be invading Venezuela, maybe just siege? What are your opinions on it?

19:53Richard Waters: Thank you.

19:54Michael Strain: Now, Michael, Gustavo's question refers to the at least seven ships and thousands of sailors that the U.S. Navy has sent to the waters around Central and South America in recent days. Michael, what's going on there? So that's right. The U.S.

20:09Richard Waters: Navy sent at least seven surface vessels, including three missile destroyers and an amphibious assault ship, as well as a nuclear-powered fast attack submarine. And they're heading to waters off the Venezuelan coast. That's aroused a lot of attention because it's the biggest such naval deployment in a long time. And it's unusual because the justification that was given by the Trump administration

20:36Michael Strain: was to help in combating drug trafficking. But something military analysts have raised

20:42Richard Waters: is that you don't send guided missile destroyers capable of firing Tomahawk missiles and amphibious assault ship if you're planning just to intercept

20:53Michael Strain: drug trafficking shipments at sea. So it's a very significant naval deployment, includes several thousand Marines as well. What it's not, I think, is an invasion, to knock that on the head, This is not the size of force you would need for an invasion of Venezuela. And the Trump administration's upped its rhetoric against Venezuelan president, Nicolás Maduro. It's included him, accused him, rather, of running a drug trafficking cartel and being an illegitimate president. So there's been some speculation, too, that this could be a prelude to a snatch and grab operation to bring Maduro to justice.

21:30Michael Strain: Thanks for that answer, Michael. Thank you. And Gustavo, I hope that answers your question. If you listening right now have a question about U.S. politics and the economy, send me a message at the email in the show notes. Make sure to include your name and where you're from. And like Gustavo, if you send us a voice memo, we may even play it on the show.

21:54Michael Strain: This was Swamp Notes, the U.S. politics show from the FT. If you want to sign up for the Swamp Notes newsletter, we've got a link to that in the show notes. Our show is produced by Henry Larson and mixed by Sam Giovinco. Special thanks to Pierre Nicholson. I'm your host, Mark Filippino. Our acting co-head of audio is Topher Forges. Original music by Hannes Brown. Check back next week for more U.S. political analysis from the Financial Times. Thank you. the RBC Capital Markets Podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth.

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