
This article does not constitute investment advice, and the author does not hold positions in any of the stocks referenced herein.
Intel’s Resilience Amid Market Turmoil
Despite the wide-reaching impacts of tariff-related uncertainties affecting the stock market, Intel’s shares have shown resilience, albeit with only a slight uptick year-to-date. This persistent interest can be attributed to investor optimism surrounding Intel’s potential collaboration with TSMC, which may address the firm’s current challenges in advanced chip production. This sentiment is further buoyed by unofficial encouragement from the Trump administration.
Collaboration with TSMC: Progress or Pitfall?
Recent reports indicate that Intel and TSMC might be on the verge of forming a joint venture (JV) to oversee Intel’s semiconductor fabrication facilities situated in the U. S.This partnership is anticipated to also incorporate other significant players in the chip industry, including Qualcomm, NVIDIA, and Apple. Under the proposed agreement, TSMC is expected to maintain a 20 percent equity stake in the venture, which would primarily be funded through its contribution of technology and expertise.
However, this collaboration presents several challenges. Intel and TSMC utilize fundamentally different manufacturing processes, raising compatibility concerns that could impede the effectiveness of the JV.
Analysts’ Skepticism Regarding the Proposed JV
Investment analysts at Citi have expressed substantial reservations regarding this potential partnership. They assert that the operational disparities between Intel and TSMC could hinder any collaborative effort:
“We do not believe TSMC operating/forming a JV with Intel would work given differences in manufacturing and operations.”
Furthermore, Citi questions the prudence of allowing fabless companies to invest in this joint venture, asserting:
“We believe Intel foundry has proven over the years it cannot compete with TSMC, and forcing a company to use vastly inferior manufacturing would destroy shareholder value of a fabless company such as QCOM or AVGO.”
Calls for Reassessment of Intel’s Strategic Direction
Citi further recommends that Intel consider withdrawing from the chip fabrication sector altogether:
“Given the highly unlikely chance of Intel merchant foundry succeeding and subsequent drag on cash flow, we continue to believe Intel would be best served by exiting the merchant foundry business and focusing on its core CPU business.”
American investment bank BofA, represented by analyst Vivek Arya, has also criticized the JV proposal. He points out that dismantling aspects of Intel’s operations could prove to be an arduous task, citing various hurdles such as:
- Stringent regulatory approval processes from global authorities, particularly given Intel’s dominant ~70% market share in the PC and server CPU sectors.
- The mismatch between Intel’s and TSMC’s manufacturing methodologies.
- Ongoing concerns about TSMC’s fab expansion plans in Arizona, which are aimed at serving AI customer demands.
- The existing substantial debt burden of AVGO, amounting to $58 billion net debt.
- Limitations imposed by Intel’s CHIPS Act funding, which requires a majority stake in manufacturing operations to qualify, along with ROI pressures from co-investment partners.
The discussions surrounding Intel’s future direction highlight a critical juncture for the company as it navigates through the complexities of the semiconductor landscape.
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