Intel reportedly struck an agreement with US officials to receive up to $3.5 billion in federal grants for the production of chips for the Department of Defence (DoD), adding to a possible state funding worth $8.5 billion.

Bloomberg reported the programme is geared towards the manufacturing of advanced semiconductors with “military and intelligence applications”, with an operation that will span multiple states including Intel’s Arizona facility.  

The outlet’s sources expect the grants to be officially announced next week, adding to Intel’s existing financial arrangements with the US government which includes a possible $8.5 billion in funding and $11 billion in loans as part of the CHIPS and Science Act investment.

Codenamed Secure Enclave, Bloomberg reported the funding also comes from the same $52 billion chips investment pot designed to bolster resilience around domestic chipmaking. Its sources stated the cash was initially supposed to come from a $2.5 billion commitment by the DoD’s Pentagon, before a U-turn.

There were also plans for the project to be financed by cash the US already set aside for Intel, but the government decided to separate Secure Enclave from “commercial” chip agreements.

The outlet added there were multiple factors that could have possibly led to the deduction of the scheme’s total funding, including opposition from other chipmakers and fears from officials around relying on one manufacturer.

Terms for the broader Secure Enclave incentive are still being negotiated.