Nov 25 (Reuters) - Intel ( INTC ) expects a small

reduction from the $8.5 billion preliminary U.S. subsidies

planned for the chipmaker, according to a person familiar with

the matter.

The $8.5 billion in direct grants were part of a larger

package of loan guarantees, tax incentives and other measures

announced in March.

But in September, Intel ( INTC ) also won a $3 billion contract with

the U.S. Department of Defense. The funding for that contract

ended up coming from the $39 billion that U.S. lawmakers

allocated for chip subsidies rather than the Pentagon's budget,

which led to a reduction in Intel's ( INTC ) direct grant award, the

person said.