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IS INTEL'S NEW CEO A NATIONAL SECURITY RISK? Lip-Bu Tan funneled up to $2.2B to build the Chinese chip industry By Berit Anderson Additional research for this report was provided by Evan Anderson. Why Read: Intel has been a core recipient of US funding to bolster its US foundry infrastructure in Middle America, but its new CEO has deep financial and business ties to the Chinese Communist Party and Chinese chip firms. ______ Last week, when Intel chair Frank Yeary announced the company's new CEO, the news and media response was overwhelmingly fawning. Lip-Bu Tan - former CEO of chip design-maker Cadence Design Systems, chair of Walden International, and an Intel board insider with a clear vision for the company's future - would be taking the reins. Intel's stock rallied. Yeary's announcement, however, omitted the fact that Tan, 65, has been under deep scrutiny by Congress's Select Committee on the Chinese Communist Party (CCP). The latter released a report just a month before the CEO announcement detailing Tan's personal stewardship of Cadence investments of up to $2.2 billion into Chinese semiconductor companies - deals that were often made in direct partnership with the People's Republic of China (PRC). The deep financial and business connections between Lip-Bu Tan and the CCP's state-backed efforts to steal US chip IP and market share make him a wholly unsuitable choice to lead a US company receiving billions in US government funding to pioneer domestic foundry development and rebuild manufacturing in the American heartland. The congressional report, released in February, examines a handful of top US venture capitalists investing in Chinese chips, including Qualcomm Ventures, Sequoia Capital, GGV Capital, and GSR Ventures. But its findings focus heavily on Tan's firm, Walden International, which seems to have made up the lion's share of those investments - including investments made after entities were added to the US Commerce Department's Entity List. Among the many media reports I read in my research about Tan's instatement as CEO, only the Wall Street Journal noted the controversy, about halfway through its listicle "Five Things to Know About Intel's New CEO."
How Walden Bankrolled the PRC's Semiconductor Industry According to the calculations of the congressional committee, Walden International invested somewhere between $833M on the low end and $2.25B on the high end into Chinese microchip entities. It's my understanding that the variability in these numbers, as laid out in the chart below, is due to the variability of Tan's own reporting to the committee, which he provided as a set of ranges. In my opinion, this makes the high end of the range the most likely sum of actual investment. As a legal strategy, providing a range would allow Tan some level of plausible deniability without putting himself at legal risk.
Source: Select Committee on the CCP "Lip-Bu is an exceptional leader whose technology industry expertise, deep relationships across our product and foundry ecosystems, and proven track record of creating shareholder value is exactly what Intel needs in its next CEO," Yeary wrote in Intel's CEO announcement. And yet, the committee reports that even beyond the scale of investments Walden undertook, Tan continued to lead investments into firms legally blocked by the US government as recently as 2022. Is that the mark of an exceptional leader? "Walden International invested more than $35 million into SJSemi in October 2021, about a year after SJSemi was added to the Commerce Department Entity List alongside SMIC over its PLA ties," the committee's report had noted the previous month. "Walden has not exited that investment."
Tan's Personal Commitment to CCP Semiconductors Tan himself is mentioned frequently throughout that report as the architect of several funds created in partnership with Chinese state entities - and as an essential source of expertise in helping state-backed microprocessor firms and foundries with their funding, growth, and go-to-market strategies. Take, for example, the Walden CEL Global Fund, an investment vehicle created in 2017 in partnership with China Everbright Limited - a wholly owned subsidiary of the Chinese state-owned China Everbright Group, established in 2017. According to the Everbright Limited website: Walden CEL Global Fund I primarily focuses on global investment opportunities or M&A deals in equity and equity-related securities of growth or mature stage companies in semiconductor or electronic information industries or in or related to the upstream or downstream of these industry chains; especially concentrating on cross-border investments caused by the relocation of semiconductor and electronic information industry development in Asia and Pacific area. In addition, Walden partnered with China in 2011 to create "the first fund focusing on the semiconductor industry in China" and with China Electronics Corporation (CEC) in 2018. Walden provided approximately $125 million in funding to stand up SMIC, China's largest semiconductor foundry; and Tan personally served on its board for nearly 20 years, from 2001 to 2018.
Source: Select Committee on the CCP "AMEC and SMIC undertook an initial public offering while Tan was a board member," the Select Committee on the CCP report states, adding: Tan has said that he provided advice to AMEC about strategic planning, business planning, and team building, has introduced new shareholders and partners, and has helped develop customers and markets. Descriptions of Walden's activities in Chinese also state that it "assists in technology transfer." According to the report, Walden's investments of time and resources also provided material support to China's Thousand Talents Plan, the Belt and Road Initiative, and the Help Our Motherland through Elite Intellectual Resources from Overseas (HOME) Program. There is a more personally and financially compromised choice to run Intel, but Xi Jinping is a bit busy these days trying to keep China's economy from crashing. So how, exactly, did Intel's board decide that the most compromised man in microchips was the best choice for CEO?
A Curious Timeline of Board, Funding, and Activist Investors It's no surprise that Intel board chair Yeary, a capital advisor with a 25-year background in finance and M&A, would have been excited about the Intel future Tan represents. Tan will likely slash headcount across the company, and analysts expect him to eventually cleave the American chip giant in half, spinning out its foundry and product businesses separately to increase the value and focus of each. This is a role to which his business expertise at Cadence, SoftBank, and Walden makes him uniquely suited - and a proposition that appeals to a market that has grown frustrated by Pat Gelsinger's slower and steadier approach to building up a nascent American industry. It is a stressful thing to be chair of one of America's most highly criticized and significant firms, and I can only imagine that, to Intel's board, Tan's cherry history of turning Cadence around might have seemed like a magic bullet for Intel's struggling stock. It is interesting to note, however, the timing around Tan's arrival on the Intel board, the congressional investigation of Tan, and the increase of his critiques of then-CEO Pat Gelsinger's strategy. It appears that Tan first served in a professional role with Gelsinger not at Intel, but as a cabinet member at Transforming the Bay with Christ - a gospel organization started by Gelsinger. Tan no longer serves at the organization, but the website from his time there still exists, and his bio indicates that he might have joined during his board service at SoftBank, which ran from 2020 to 2022. On June 24, 2022, Tan resigned from the SoftBank board - a development that is notable mostly for the relatively short duration of his service and this curious statement he made upon his departure: Although making decisions on specific investments is not a role of the Board, I was able to oversee that, using my knowledge and experience at Walden. It was an unusual turn of phrase for the conclusion of a short board term. This breach of traditional board boundaries would not prove to be his last. Less than two months later and just two days after the CHIPS and Science Act was signed into law, Intel announced that Tan would be joining its board. The timing also aligned with some of Walden's most recent investments into Chinese state-backed entities alleged by the congressional committee. Theoretically, Tan first received notice of the congressional investigation the following summer, on July 18, 2023, with the arrival of a letter signed by chair Mike Gallagher and ranking member Raja Krishnamoorthi. "From 2015 to 2021, at least 39 percent of Walden's AI investments were in PRC companies," they wrote, before requesting an exhaustive list of information about Walden investments. "Walden continues to actively invest in PRC semiconductor companies: in December 2022, it backed Jingneng Microelectronics alongside a host of China-based venture funds, and in April 2023, it backed Qingchun Semiconductor, again alongside China-based funds." Tan was given less than a month to respond. Whether or not he disclosed the arrival of that letter - or the corresponding investigation - to the Intel board, I do not know. If he had, it would likely have been taken up by the Corporate Governance and Nominating Committee, a body currently made up of the following board members:
Source: Intel In yet another unusual breach of traditional board roles, the Intel board authorized Tan to oversee the company's manufacturing operations in October 2023, as Reuters reported in late August the following year. It seems unlikely that, if Tan had disclosed the letter, the board would have chosen that moment to expand his responsibilities. In either case, immediately after submitting the requested list of his dealings with the PRC - and at a time when the US government was actively negotiating with Pat Gelsinger about just how many billions it would be investing into Intel's foundry operations - Tan was going heads-down into Intel's manufacturing processes. This role, which would normally have been a highly protected space in American IP, also created the basis for his publicized struggle with Gelsinger the following summer. Throughout the next year, Tan appeared to clash with both Gelsinger and the board: [. . . ] he expressed frustration with the company's culture, sources told Reuters, saying it had lost the "only the paranoid survive" ethos enshrined by former CEO Andy Grove. He also came to believe that decision-making was slowed down by a bloated workforce, Reuters reported. Tan presented some of his ideas to Intel's board last year [2024], but they declined to put them into place, according to two people familiar with the matter. On August 12 of 2024, shareholder advocate firm Hagens Berman filed a class- action lawsuit against Intel, "alleging the chip giant misled shareholders about the performance of its foundry business." Given its class-action nature, the names of the investors that instigated or signed on to this specific suit are not public, so there's no way to assess whether they might have had any allegiances to the CCP or its chip industry. But suffice it to say that Intel had not been reporting positive returns on its foundry business for quite some time, going so far as to remove 90% of its dividend the previous year - a move that upset some investors but could also call into question the allegations behind the suit itself. Within a week of the lawsuit, Tan informed the Intel board that he was stepping down. His announcement cited personal reasons. Perhaps he didn't want to face personal liability for a shareholder lawsuit. In either case, the move served to distance Tan from Gelsinger's performance and leadership and register his public disapproval of Gelsinger as CEO. On November 26, Intel and the Biden administration finalized $7.86 billion in funding for Intel's fabs in New Mexico, Ohio, Arizona, and Oregon. But the victory was bittersweet. Within a week, Gelsinger was forced out by the board, which reportedly had been spooked by the "lack of products capable of winning in the market something the board felt had been neglected in the push toward turning Intel into a made-to-order chip manufacturer," Bloomberg reported at the time. Put plainly, the economy's tide had turned to AI chips, and Intel didn't have a strong competitor in hand to beat back market share from Nvidia or AMD. To add insult to injury, another activist shareholder, the LR Trust, filed suit against Gelsinger and Intel CFO David Zinsner on December 17, requesting that they return the last three years' worth of their salaries to the company. That lawsuit is still playing out in a court in Delaware. Lip-Bu Tan, along with all of Intel's other board members, was named as a defendant in that suit. If he had been trying to escape liability, it didn't work.
Lip-Bu Tan's appointment and board history at Intel raise some interesting questions:
The risk his appointment raises for Intel as a secure US chip vendor and foundry is immeasurable.
Xi Jinping has a long history of using whatever influence he can muster to undermine Western industry, steal IP to advance Chinese tech and military capabilities, and ultimately undercut the prices of inventing nations, putting US firms out of business and maintaining our economic dependence on cheap Chinese goods. The chip space is no different. The most challenging chips in the world to build - and those in which the US currently has the most differentiation with China - are AI chips. It's a huge market with few competitors. Only Nvidia, AMD, and Intel are even considered competitors - and Intel, as you are now aware, hasn't exactly been dominating the space.
But Intel does have one key advantage: the funding and governmental support to build up a nascent foundry industry. So the selection of a pro-China CEO, who has personally overseen the investment of up to $2.2B across Chinese semiconductor firms and spent years providing those companies with personal advice, is a monumental win for Xi Jinping and his military strategy. This is a person whose choices could make or break the future of the United States' foundry capabilities. Might Chinese entities have helped to move the needle in the direction of Tan's selection? It's certainly possible. Perhaps in inciting shareholder unrest, or pushing his selection at other firms, or building up his success in China through state funding in exchange for outside access and validation. Further investigation is warranted. It certainly would not have been the first time China has used manipulation and market access to convince leaders at the US's top chip companies to skirt national sanctions:
The US chip industry may be ahead, but China's influence on our leaders is strong - and growing all the time. For Jensen Huang and Lisa Su, finding ways to skirt US restrictions for market access is all in a day's work. On that front, at least, Lip-Bu Tan is already leading the pack. Perhaps Yeary was right about his leadership capabilities after all.
Your comments are always welcome.
Sincerely, Berit Anderson
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