Reuters. Infographic. Intel’s logo at E3 The world’s largest video game industry conference is in Los Angeles.

By Stephen Nellis

CHANDLER, Ariz. (Reuters) – Intel Corp (Nasdaq:) said on Friday it had won a contract for the second phase of a project to help the U.S. military make more advanced semiconductors inside the United States.

Under the program, Intel will help the military develop prototypes of chips using its semiconductor packaging technology at its facilities in Arizona and Oregon. The packaging technology combines pieces of chips called “chiplets” from different suppliers into a package that helps cram more functionality into a smaller finished product while reducing its power consumption.

“As more and more semiconductor manufacturing moves overseas, (the Department of Defense) is very interested in making sure they’re making advanced microelectronics for national security here in the United States,” Intel CEO Bob Swan told Reuters in an interview during a tour of the recently completed $7 billion plant expansion in Arizona, where Intel employs a total of 12,000.

“As a U.S.-based company, it’s important for us to be able to address some of the fundamental concerns that the U.S. has about future access to these key technologies,” he said.

Intel declined to disclose dollar figures for its portion of the contract, which is overseen by the Naval Surface Warfare Center’s Crane Division. Intel won part of the first phase of the contract in 2019.

Intel’s partnership with the Defense Department comes at a time when U.S. officials are focused on boosting domestic semiconductor manufacturing in response to the rise of China as a strategic competitor. About 75 percent of the world’s chip-making capacity is in Asia, with many of the most advanced plants located in Taiwan and South Korea, within reach of the Chinese and North Korean militaries.

Ellen Lord, the Pentagon’s chief weapons buyer, told the U.S. Senate Armed Services Committee at a hearing Thursday: “I think one of the areas where we have the greatest impact on China in a broad sense is in the re-contracting of microelectronics.” .

Intel is one of three companies in the world capable of producing highly sophisticated computer chips. The other two – Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. (OTC:) – have packaging technology similar to Intel’s.

But Intel has been working on the technology longer and can do the work in the U.S. in a way that the other two can’t, said Dan Hutcheson, chief executive of VLSI Research.

“Nobody else in the United States has their technology portfolio,” he said.” Packaging (NYSE:) is a big win for them.”

With relations between Washington and Beijing at their worst in decades, U.S. officials have cracked down on suppliers to Chinese companies such as Huawei Technologies Co, with new rules on Sept. 15 barring most U.S. companies from selling products to the Chinese telecom giant. Intel confirmed last month that it has a license to continue supplying some of its products.

Swan said global market access is “very important” in helping Intel generate the cash needed to build chip fabs, known in the industry as “fabs”.

“We make money, we take the money, mainly here, in the United States in the fab and R & D to reinvest,” he said.

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