WASHINGTON, Nov 26 (Reuters) -

The U.S. Commerce Department said Tuesday it was finalizing

a $7.86 billion government subsidy for Intel ( INTC ), down from

$8.5 billion announced in March after the California-based

chips maker won a separate $3 billion award from the Pentagon.

The award will support nearly $90 billion in manufacturing

projects in Arizona, New Mexico, Ohio, and Oregon.

"That means American-designed chips being manufactured and

packaged by American workers in the United States by an American

company for the first time in a very long time," Commerce

Secretary Gina Raimondo said.

Intel ( INTC ) has already met some initial project milestones and

will receive at least $1 billion of the award before the end of

December, a government official told reporters, adding that the

grant reduction was not connected to Intel's ( INTC ) broader struggles

this year.

Margins have narrowed and the chipmaker has laid off

thousands of employees, after

years of heavy spending

at the once-dominant chipmaker by Chief Executive Pat

Gelsinger.

The $7.86 billion subsidy is the largest of any award under

a 2022 law that seeks to boost domestic semiconductor output

with $52.7 billion in funding, including $39 billion for

semiconductor production and $11 billion for research.

Intel ( INTC ) in September won a $3 billion contract with the

Defense Department, after the initial $8.5 billion in grants had

been announced. Funding for the Pentagon contract ended up

coming from the $39 billion that U.S. lawmakers allocated for

chip manufacturing subsidies rather than the Pentagon's budget,

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

company and the government official said.

Gelsinger said Tuesday "strong bipartisan support for

restoring American technology and manufacturing leadership is

driving historic investments that are critical to the country's

long-term economic growth and national security."

Intel ( INTC ) opted not to finalize a separate $11 billion low-cost

government loan that had been offered in March.

The company said Tuesday the loan terms "were less favorable

than anticipated for Intel's ( INTC ) shareholders and did not align with

Intel's ( INTC ) long-term growth and market interests." It said it looks

forward to engaging with the incoming administration about

utilizing loan provisions in the future.

Intel ( INTC ) said it also plans to claim the Treasury Investment

Tax Credit, which is expected to be up to 25% of qualified

investments of more than $100 billion.

Raimondo noted the Intel ( INTC ) award was the sixth to be finalized

and that more would be completed in the coming weeks. She added

that awards were being finalized "in a way that protects and

safeguards taxpayer dollars."

The Commerce award includes restrictions on stock buy

backs for five years and provisions for sharing of

"meaningful" excess profits

.