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Badly in need of a win amid a dreadful 2024 that has seen its stock plummet by about 60%, some positive news has finally emerged for beleaguered chip company Intel (INTC). Last Friday night, Bloomberg reported that INTC is in line to secure up to $3.5 bln in federal grants through The Pentagon's "Secure Enclave" initiative, which was created to help lessen the military's dependence on foreign chip manufacturers. By no means is this a game-changer for INTC that wipes the slate clean of all its troubles, but the new military contract is still a welcomed development that should provide its top-line and cash flow with a much-needed boost.

• In terms of selecting a domestic chip maker for the Secret Enclave program, the government's options are quite limited. Up to 90% of the world's advanced semiconductors are manufactured in Taiwan -- the bulk of which are produced by Taiwan Semi Manufacturing (TSM) -- and INTC is one of the few, if not the only, chip manufacturer with the scale to meet the government's needs.
• This positioning has significantly benefitted INTC as the company has already racked up $8.5 bln in federal grants and $11.0 bln in loans through the CHIPS Act in support of its foundry expansion plans. However, INTC still faces a massive funding deficit given that it will need over $100.0 bln in capital over the coming decade to help construct new factories in Arizona, Ohio, New Mexico, Oregon, and abroad.
• Considering INTC's deep struggles and data center market share losses at the hands of NVIDIA (NVDA) and Advanced Micro Devices (AMD), there is an even greater sense of urgency for the company to shore up its financials. To put INTC's downfall into perspective, the company's cash flow from operations for the six-months ended July 1, 2024, was $1.07 bln compared to $6.7 bln for the same six-month period ended in 2022.
• On that note, a couple weeks ago Bloomberg reported that INTC is considering splitting its Product and Foundry segments in a shock move meant to help stop the bleeding. In Q2, the Foundry segment, which is core to INTC's "IDM 2.0 strategy", posted an operating loss of more than $(2.8) bln -- more than $1.0 bln worse than the year-ago period. Those mounting losses, combined with deteriorating sales, especially in the Data Center and AI (DCAI) segment (-3% in Q2), prompted INTC to initiate a huge headcount reduction plan of at least 15% of its workforce, which it also suspended its dividend.
• Whether INTC takes such drastic measures as splitting off the Foundry business remains to be seen, but selling off other non-core assets seems like a very plausible possibility. In fact, in another Bloomberg report from last week, it was reported that INTC is considering selling part of its Mobileye (MBLY) stake. After INTC spun MBLY off in an IPO in October 2022, it retained an 88% ownership stake in the chip maker for autonomous driving technology.

After a barrage of negative headlines over the past few months, there are few companies more in need of a narrative shift than INTC. This new military contract does offer a reprieve, although it doesn't resolve the underlying competitive issues that have engulfed INTC.