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Why Intel CEO Pat Gelsinger was a guest at President Biden’s State of the Union address

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U.S. first lady Jill Biden and others applaud her guest Intel CEO Patrick “Pat” Gelsinger in the first lady’s box as President Joe Biden mentions Gelsinger during his State of the Union address to a joint session of the U.S. Congress in the House of Representatives Chamber at the Capitol in Washington, U.S. March 1, 2022.
Evelyn Hockstein | Reuters

Investors, for the most part, haven’t shown a great deal of appreciation for the recent news coming out of Intel, including its recent investor day. Not only did Intel say that its forthcoming server chip would be delayed another year to 2024, but it would be investing heavily in big capital foundry projects, forgoing cash flow for three years and allowing revenue and profit margins to shrink.

For Wall Street analysts and shareholders, Intel’s recovery plan seems potentially long and risky, based on the vision of new CEO Pat Gelsinger. It will take years for Intel to ramp up its new domestic foundry business making chips to sell to designers like Apple and Qualcomm, wrote Morningstar analyst Abhinav Davuluri in a report.

But Intel, and Gelsinger specifically, have one powerful friend: President Joe Biden. In his State of the Union Address on Tuesday evening, Biden called out Gelsinger, who was in attendance, and Intel’s $20 billion investment in new chip manufacturing in Ohio.

“If you travel 20 miles east of Columbus, Ohio, you’ll find 1,000 empty acres of land. It won’t look like much, but if you stop and look closely, you’ll see a ‘Field of dreams,’ the ground on which America’s future will be built. This is where Intel, the American company that helped build Silicon Valley, is going to build its $20 billion semiconductor ‘mega site’.”

Biden noted that Intel’s CEO, Pat Gelsinger, “told me they are ready to increase their investment from $20 billion to $100 billion. That would be one of the biggest investments in manufacturing in American history.”

But that is contingent on Congress passing a roughly $50 billion innovation act, which went through the Senate last summer but has not passed in the House.

Betting on chips for technology not yet invented

There is an upside to Intel’s push to expand its U.S. chip production beyond being aligned with government goals in competitiveness with China and on national security. It will give Intel the capacity it desperately needs to create cutting-edge tech for future chips, according to Gartner vice president and analyst Alan Priestley, and that goes beyond Intel’s agenda. The multi-billion-dollar plans to build four semiconductor fabrication plants — two in Chandler, Arizona and two just north of Columbus, Ohio — represent something bigger: the potential to be a boon for many U.S. businesses beyond solely the biggest.

That was among Biden’s soundbites during the Intel speech segment, saying it will be key for the “technology we have yet to invent.”

For the Rust Belt communities in Ohio, though, Intel’s investment is being viewed as a big win right now.

“It’s like hitting the lottery,” says Tim Opsitnick, chairman of the Council of Smaller Enterprises with the Greater Cleveland Partnership, a chamber of commerce with about 12,000 member companies in northeast Ohio. Though Opsitnick and his constituents are located some 100 miles northeast of Intel’s proposed New Albany, Ohio plant, he and many others expect the business opportunities to fan across the region. “Our companies are asking themselves, ‘How do I position myself to be able to respond to the needs of such an opportunity?” he said. “Because it really is unprecedented.”

Intel’s site selection near Columbus, Ohio, a white-collar government city known for software start-ups and a robust financial services sector, is likely to be one of the biggest new clusters of U.S. manufacturing jobs in coming years. It is a prime example of reshoring, the practiceof multinational companies moving some of their manufacturing home from sites across the globe, typically Asia, where labor historically has been cheaper.

The trend has been on a slow upswing for a number of years, due to corporate tax and regulatory cuts in the U.S. and concerns about increasing overseas wages. But it was the import shortages and supply chain snags observed during the Covid-19 pandemic that propelled reshoring to record levels in 2020, said Harry Moser, founder of the Reshoring Initiative, a nonprofit dedicated to helping bring manufacturing jobs back to the U.S.

“Companies, the government and consumers saw the shortages and the lack of self-sufficiency associated with peak-Covid personal protective equipment,” said Moser. “Other industries saw that and said, ‘this could happen to us, too.'”

Rebuilding domestic manufacturing

Some 230,000 manufacturing jobs were transferred to the U.S. in 2021, an uptick from 170,000 in 2020, according to Reshoring Initiative data. The bulk of these jobs involve transportation equipment, where the size and weight of the products — components for cars, planes and boats — eat away at the total cost savings of overseas production. Sectors that are reshoring at a greater pace today include computer/electronic products and electrical equipment and components, which involve things like solar panels, lithium ion batteries and drones.

Semiconductor industry jobs are expected to surge in the U.S. over the next three years, indicated by the announcements of new U.S. plants in Arizona, Ohio and Texas from Intel, Samsung and Taiwan Semiconductor Manufacturing Company. These plants will expand the semiconductor supply chain by allowing chipmakers the capacity to design chips for products we’ll be wanting three to four years from now, says Priestley. The fabs won’t make the U.S. self-sufficient in terms of total supply chain logistics — chips still need to be shipped around the world to be integrated into products — but adding capacity at home reduces Intel’s reliance on foreign partners.

“Whenever we see an industry get so crippled by global trade impediments, there is a rebalancing that goes beyond it,” said Terry Esper, an associate professor of logistics at the Fisher College of Business at The Ohio State University. “This larger network redesign conversation around balancing where we manufacture, where we distribute from and trying to reduce the risk of those locations has been happening across all industries.”

Roughly half of all reshored jobs belong to small businesses in the supply chain, according to Moser. Small American manufacturers typically benefit from reshoring in two ways: A multinational company that assembles its end products in the U.S. switches from foreign to domestic suppliers, or a corporation that initially assembled its final products overseas moves its end processes to the U.S., which likely means they’ll find new local suppliers near their plants.

Small business proponents near New Albany, Ohio, hope that’s the case once Intel’s new semiconductor fab — its first new manufacturing site in 40 years — goes online in 2025. Intel says the site will create 3,000 Intel jobs and 7,000 construction jobs over the next three years. It also hopes to support “tens of thousands of additional local long-term jobs across a broad ecosystem of suppliers and partners,” according to its announcement.

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Local suppliers most impacted by a large semiconductor plant coming to town include a myriad of niche manufacturers– think plate work makers and nonferrous metal smelting and refining — and professional services like marketing, public relations and research and development.

Bill LaFayette, owner of economic consultancy Regionomics, who crunched sector numbers from the U.S. Bureau of Economic Analysis to identify local business opportunities, likens Intel’s investment to when Honda opened its first auto plant in the region in the 1970s. “They’ve spawned dozens of local automotive suppliers all over the region,” he said. “Their impact beyond just the manufacturing plants themselves has been tremendous over the decades and similarly Intel is going to open all sorts of opportunities for new and existing businesses.”

One big inhibitor for all this new business in Ohio and across the nation: a dearth of manufacturing talent, which dogged the industry even before the pandemic. “We’re at a national crisis when it comes to the people side of it,” says Jeannine Kunz, vice president of Tooling U-SME, a provider of manufacturing training. “Firms are turning down orders because they don’t have the people.”

The skills gap, which could result in 2.1 million unfilled jobs by 2030, according to Deloitte and The Manufacturing Institute, is especially taxing for small businesses who compete with larger firms like Intel who can afford to pay more in wages. “It could be an offsetting impact if you’re trying to start a technology business — really any business,” LaFayette said.

Debate over local economic growth

There’s also no guarantee that Intel’s economic impact will equal what Gelsinger sees with his Silicon Heartland projection. Research from Penn State shows that regions with large, nonlocal corporations experience slower long-term economic growth than those bolstered by an ecosystem of small, locally-owned small businesses. That’s because big firms tend to use internal systems for services like accounting, legal, supply and maintenance, according to Stephan Goetz, professor of agricultural and regional economics at Penn State and director of the Northeast Regional Center for Rural Development. “A question for Intel would be are they bringing everything in from the outside,” he said. “That would that have a different impact [on the region] than a firm that sources supplies locally.”

To sustain a viable workforce, Intel said it’s investing about $100 million over the next 10 years in partnership with Ohio universities, colleges and the U.S. National Science Foundation to build semiconductor-specific curricula for associate and undergraduate degree programs. On a national level, in reshoring hotspots like Arizona, Ohio, Tennessee and Oklahoma, more state and local governments — and organizations like Tooling-U SME — are focusing on intercepting and training students at the high school level.

“The ecosystem that’s been developed is why Intel is here — the leadership in Ohio has never stopped making investments in manufacturing, infrastructure and training,” said Kimberly Gibson, the ecosystem director at America Makes, a membership organization in Youngstown, Ohio, for the additive manufacturing and 3-D printing industry. “Intel’s decision to locate this facility in Ohio will have follow-on impacts for generations to come.”

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