Despite the ongoing tariff-induced carnage throughout the length and the breadth of the market, Intel shares are still up on a year-to-date basis, albeit marginally. This relative strength has been driven by investors' conviction that the struggling chipmaker will manage to win generous cooperation from TSMC in resolving its cutting-edge node deficiencies, helped along by copious, behind-the-scene nudges from the Trump administration. Yet, some Wall Street analysts remain decidedly less enthusiastic about the prospects of just such an outcome.
As we reported recently, Intel and TSMC have apparently reached an understanding to constitute a JV that would then manage Intel's US-based fabs. The arrangement would also rope in other chip designers such as Qualcomm, NVIDIA, and Apple. TSMC would reportedly retain a 20 percent stake in the JV, financed via its in-kind contribution of technology and expertise.
This arrangement, however, raises quite a few questions. After all, Intel and TSMC have completely different chip fabrication processes that are barely compatible with each other, if at all.
It is for this reason that Citi has now cast serious doubts on the viability of the proposed JV:
"We do not believe TSMC operating/forming a JV with Intel would work given differences in manufacturing and operations."
Citi then goes on to "question the wisdom of fabless companies investing in this JV," noting:
"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."
Instead, Citi thinks Intel should exit the chip fabrication business entirely:
"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."
Of course, BofA's Vivek Arya also recently denigrated this proposal, noting that splitting up Intel "could be time- consuming and complicated given: 1) Extensive approval requirements from global (China) regulators due to INTC’s dominant ~70% share of PC/server CPU, 2) Mismatch between INTC and TSMC’s manufacturing processes, 3) TSMC’s ongoing fab expansion plans in Arizona with ability to serve AI customers, 4) AVGO’s existing low-levered but high debt ($58bn net debt) balance sheet, and 5) Constraints of INTC’s CHIPS Act funding (design needs to own 50%+ of manufacturing) and ROI requirements from co- investment partners ..."
