Transforming Intel's factories into a top-tier contract chip manufacturer will take years and tens of billions of dollars, even with the help of the world's largest chipmaker, TSMC -- an idea reportedly floated by Trump administration officials.
Analysts were skeptical that Taiwan Semiconductor Manufacturing Co. (TSMC) would do a better job than Intel at turning around its subsidiary, Intel Foundry, if Intel received financial assistance from private investors and the U.S. government. They also balked at rebuilding the U.S. chip manufacturing industry by allowing a foreign company to control the nation's largest homegrown semiconductor maker.
"It's a very, very delicate situation. It's not as black and white as just TSMC coming in, buying out Intel and saving the day, and everybody's happy," said Craig Stice, chief analyst for semiconductor research at Omdia.
According to media reports last week, TSMC, the world's largest chipmaker for hire, is mulling over taking a controlling stake in Intel's manufacturing operations at the request of government officials. It is unknown whether President Trump would approve of a foreign company controlling Intel's fabrication plants, called fabs in industry jargon. Intel's chip design business would remain independent.
A TSMC takeover wouldn't speed up Intel Foundry's transformation into a world-class contract manufacturer, analysts said. Reaching such a lofty goal will require tens of billions of dollars and five years or more, no matter who runs Intel's fabs.
TSMC has captured about 65% of the made-to-order manufacturing market because it has state-of-the-art equipment adaptable to chip designers' specifications, analysts said. Intel, which has focused on making its chips for decades, will need the same machinery in existing and new fabs -- a complex and lengthy process.
Conceivably, TSMC has access to the necessary funds for an Intel Foundry overhaul. However, the result would counter the goal -- which started with the Biden administration -- of resurrecting U.S. chip manufacturing for economic and national security reasons. Placing Intel factories within TSMC would hand a critical U.S. asset to foreign control.
"This is ludicrous," said Michael Yang, senior director of semiconductor research at Omdia.
Other analysts argued that the Trump administration could structure a deal with TSMC that meets national security concerns and grows the U.S. chip industry internally. The administration, for example, could press U.S. companies such as Nvidia, AMD and Qualcomm to commit a percentage of production in U.S.-based fabs through tax incentives and import tariffs, said Ryan Shrout, president and general manager of Signal65, which provides consulting services to the semiconductor industry.
If it is embedded even more deeply in the U.S. economy and with U.S. politics, and an adverse situation comes up in Taiwan itself, TSMC could fall back to its U.S.-based facilities.
Ryan ShroutPresident and general manager, Signal65
Helping to build a made-in-America chip industry would also benefit TSMC by giving it a haven if China ever decided to invade Taiwan, Shrout said. China considers Taiwan part of its territory and has pledged to one day control the island, using force if necessary.
"If it is embedded even more deeply in the U.S. economy and with U.S. politics, and an adverse situation comes up in Taiwan itself, TSMC could fall back to its U.S.-based facilities," Shrout said.
TSMC has a manufacturing plant in Washington state and another fab under construction in Arizona.
But making TSMC a powerhouse in the U.S. at the expense of Intel Foundry would lower market competition, analysts said. Today, Intel, Samsung and TSMC dominate the market for cutting-edge chips with transistors of 2 nanometers or less. Smaller means more transistors on a chip, which produces a faster, more power-efficient and higher-performing processor.
"When you have competition, it's better for everybody," Omdia's Stice said.
Intel CEO Pat Gelsinger was implementing a long-term turnaround plan when the board of directors ousted him in December after deciding that the massive investments underway were not delivering returns fast enough. During Gelsinger's last year at the helm, Intel's stock price fell more than 50%, and its market capitalization fell to its lowest point in 30 years.
Many analysts support Gelsinger's plan to keep Intel's foundry and chip design businesses in one company, arguing Intel can regain its footing in the chip industry with both. However, after Gelsinger's departure, the company's interim co-CEO, David Zinsner, left open the possibility of selling Intel Foundry during an interview at the Barclays Annual Global Technology Conference in December.
Selling the subsidiary would benefit investors in the short term at the expense of Intel, national security and the U.S. chip industry, analysts said.
"As I've learned when dealing with Wall Street, it doesn't matter if you're right or wrong. If the investors don't like it, it's not going to happen," Forrester Research analyst Alvin Nguyen said. "This is why you need subsidies or investments from governments or investors with a longer time frame."
Omdia's Yang agreed that there's no quick option for keeping Intel whole. "You really have to look at this as a three- to five- to eight-year time frame," he said.
Antone Gonsalves is an editor at large for Informa TechTarget, reporting on industry trends critical to enterprise tech buyers. He has worked in tech journalism for 25 years and is based in San Francisco. Have a news tip? Please drop him an email.
