Today, both companies are facing significant challenges. Intel has halted its dividend, reduced its workforce and capital expenditures, and is now considered a potential acquisition target. Boeing is grappling with investigations related to crashes and midair incidents, along with production delays and labor strikes. The possibility of a breakup or bankruptcy is increasingly plausible.
Over the past five years, the combined market capitalization of these two giants has halved. This situation poses a serious threat not only to shareholders but also to the nation as a whole.
The United States is engaged in a geopolitical rivalry with China, characterized not only by military strength but also by economic and technological capabilities. Leaders from both major political parties in the U.S. are advocating for tariffs and subsidies in response.
While these strategies may have their advantages, they fail to tackle the core issue represented by Boeing and Intel. The U.S. continues to design some of the most innovative products globally, yet it is losing its ability to manufacture them effectively.
At the close of 1999, four of the ten most valuable companies in the U.S. were manufacturers. Today, none hold that distinction, with Tesla being the only notable exception, ranking 11th.
Intel and Boeing were once regarded as benchmarks in manufacturing, known for producing cutting-edge products to exacting standards and with exceptional quality. That reputation has diminished.
Their decline is not due to competition from low-cost foreign manufacturers, but rather their own missteps. Their corporate cultures shifted to prioritize financial results over engineering excellence, a fate that also befell another manufacturing leader, General Electric.
Intel missed the opportunity to produce chips for Apple’s inaugural iPhone, underestimating its profitability. Additionally, it was slow to adopt the latest technologies for creating the smallest circuits and failed to capitalize on the surge in artificial intelligence.
The challenges faced by these companies are largely self-inflicted, leading to a temptation to allow them to face the consequences of their actions. Investors might be indifferent, noting that Intel's market value is under $100 billion, while the combined worth of Microsoft, Apple, and Nvidia reaches $10 trillion.
The critical issue is that the software and devices produced by these tech giants are rendered ineffective without the sophisticated semiconductors they outsource, primarily from Taiwan Semiconductor Manufacturing Company (TSMC). Should China follow through on its threats to dominate Taiwan in the near future, the entire U.S. technology sector could find itself vulnerable to Beijing's control.
In response, TSMC is establishing manufacturing facilities in the U.S., supported by $6.6 billion in subsidies from the Chips Act. However, it may take years, if not longer, for U.S. tech firms to reduce their dependence on Taiwan.
Intel stands as the sole U.S. company capable of rivaling TSMC, yet it is currently facing significant challenges in this endeavor.
While Elon Musk’s SpaceX has surpassed Boeing in the realm of space transportation, there are no domestic alternatives for large commercial aircraft. The absence of Boeing would likely benefit Airbus and, eventually, China’s state-owned Comac, which is now introducing its competitor to the 737 and Airbus’ A320, the C919.
The potential loss of either Boeing or Intel would have far-reaching consequences across the industry. Each company underpins a complex ecosystem of designers, workers, managers, and suppliers. Once this ecosystem relocates overseas, it becomes exceedingly difficult to reinstate.
Rob Atkinson, president of the Information Technology and Innovation Foundation, emphasizes that Boeing is the largest manufacturing exporter in the U.S. and one of the most engineering-intensive firms globally, making significant investments in research and development. The failure of Intel would severely undermine U.S. efforts to strengthen its semiconductor ecosystem and regain market share from East Asia.
Thus, despite the desire of national leaders to overlook the difficulties faced by these companies, they cannot afford to do so. National security necessitates that the U.S. retains essential capabilities in aircraft and semiconductor manufacturing.
Other nations share similar sentiments: European governments have significantly subsidized Airbus. China is aggressively pursuing leadership in critical technologies, regardless of the financial implications. The so-called Big Fund has invested approximately $100 billion in semiconductors, while support for Comac reached $72 billion in 2020, as reported by the Center for Strategic and International Studies.
“Atkinson, whose organization receives backing from Boeing, stated that until Comac achieves a notable share of the global market, it will continue to incur substantial losses and rely on bailouts from the Chinese government.”
Both major political parties have embraced the notion that manufacturing holds a unique status and warrants public assistance. This raises important questions about which sectors of manufacturing should receive support and the nature of that support.
The objective of a manufacturing strategy should extend beyond merely creating jobs; it should focus on producing exceptional, globally competitive products. Washington can facilitate this by attracting the world’s leading manufacturers to establish operations in the U.S. This not only compels American companies to enhance their performance but also fosters a skilled workforce and a robust supplier network that benefits all businesses. The Chips Act, by incentivizing TSMC and Samsung to build or expand fabrication plants in the U.S., indirectly supports domestic companies like Intel, GlobalFoundries, and Micron, all of which have received subsidies.
Both presidential candidates have expressed opposition to Nippon Steel’s acquisition of U.S. Steel, influenced by the concerns of the United Steelworkers regarding the Japanese company’s commitment to unionized facilities. However, Nippon’s financial resources and expertise in specialized steel could potentially strengthen U.S. Steel as an employer.
In the early 1980s, as domestic automakers struggled with the influx of Japanese imports, President Reagan negotiated export limitations on companies like Toyota, which subsequently established assembly plants in the U.S. The advantages extended beyond the jobs created and the consumers served; Detroit was compelled to adopt Toyota’s lean manufacturing and continuous improvement methodologies.
In 2010, Toyota divested one of its manufacturing facilities to an American startup. This transaction not only provided Tesla with its inaugural factory but also included initial funding, a seasoned production executive to manage Tesla's manufacturing processes, and, as Musk noted at the time, "Toyota’s renowned engineering, manufacturing, and production expertise."
Ultimately, achieving manufacturing excellence is primarily a responsibility of the companies' leaders and shareholders. They can take a cue from Musk’s dedication, exemplified by his willingness to sleep on factory floors and prioritize product innovation over short-term earnings. Recently, when Boeing announced plans to issue new shares to strengthen its financial position, the stock price increased, indicating that investors recognize the importance of its future viability.
Labor also plays a significant role in this equation. Boeing’s union, whose leaders recently negotiated a more favorable agreement, attributed the company's challenges to management, similar to the sentiments expressed by auto workers who went on strike in Detroit last year. However, all parties are interconnected in this situation. Workers should consider not only Boeing's compensation in the coming years but also the company's long-term sustainability.