FILE PHOTO: A smartphone with a displayed Intel logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Rashika Singh and Arsheeya Bajwa

(Reuters) -Intel shares rose 4% on Friday on hopes of more financial aid for the turnaround of the struggling chipmaker after a report that the U.S. government may buy a stake.

The Bloomberg News report followed a meeting between CEO Lip-Bu Tan and President Donald Trump on Monday after Trump demanded the new Intel chief's resignation over his "highly conflicted" ties to Chinese firms.

Trump, who called the meeting "very interesting", has taken an unprecedented approach to interventions and deal-making with corporate America.

His administration had struck a deal with MP Materials that would make the Department of Defense the largest shareholder of the rare-earth producer.

Federal backing could give Intel more time to revive its loss-making foundry business, analysts said, but it still faces a weak product roadmap and trouble attracting customers for new factories.

Under the Biden administration, Intel had emerged as one of the biggest beneficiaries of the 2022 CHIPS Act, as former CEO Pat Gelsinger laid out plans to build advanced factories.

Tan, however, pared back such ambitions, slowing construction of new plants in Ohio. He plans to build factories based on demand for the services, which analysts have said could put him at odds with Trump's push to shore up American manufacturing.

The report said a deal would help build out the Ohio plant, which has faced delays and was expected to be completed by 2030.

It could be a "game-changer", said Matt Britzman, senior equity analyst at Hargreaves Lansdown. But he warned "government support might help shore up confidence, but it doesn't fix the underlying competitiveness gap in advanced nodes."

Intel lost its competitive edge years ago to Taiwan's TSMC. It has virtually no presence in the booming AI chips market dominated by Nvidia and is losing market share in PCs and datacenters to AMD.

Its latest 18A manufacturing process is facing quality issues, Reuters has reported, as only a small share of chips produced are good enough for customers, while it remains partly dependent on TSMC to make Intel in-house designed chips.

"Intel also needs capability; can the US government do anything to help here?" Bernstein analysts said.

"Without a solid process roadmap the entire exercise would be economically equivalent to simply setting 10s of billions of dollars on fire."

(Reporting by Alun John in London and Rashika Singh and Arsheeya Bajwa in Bengaluru; Editing by Jan Harvey, Rashmi Aich and Arun Koyyur)