The major chipmaking company, Intel, may potentially be divided and sold to two prominent industry competitors, Taiwan Semiconductor Manufacturing Company (TSMC) and Broadcom, based on recent rumors. Neither company has addressed these reports, but if the deal proceeds, it could significantly impact the semiconductor industry.
A report from The Wall Street Journal indicates that Intel has engaged in "informal" discussions regarding the sale of its foundry business to TSMC and its chip design business to Broadcom. Any such transactions would likely be subject to stringent regulatory examination, but the factors that led to this potential breakup and sale, as well as its implications for TSMC and Broadcom, deserve attention.
Intel remains the top designer and manufacturer of x86 CPUs for PCs and servers. However, its failure to transition into the mobile chip market allowed Arm to dominate with its energy-efficient designs, while Intel’s foundries lagged behind TSMC and Samsung in producing smaller, denser chips.
Amidst these challenges, Advanced Micro Devices (AMD) outpaced Intel by outsourcing production to TSMC, maintaining a consistent supply of efficient and affordable chips. Intel shifted its strategies multiple times over the past decade under the leadership of three different CEOs.
Under CEO Pat Gelsinger from 2021 to 2024, Intel made efforts to upgrade its foundries to compete with TSMC and Samsung, but these resource-intensive initiatives coincided with a slowdown in the PC market. Furthermore, Intel struggled with the production of its Meteor Lake CPUs, impacted by the growing relevance of Nvidia’s GPUs in updating data centers for artificial intelligence (AI) applications.
Intel’s financial solvency remains intact, but the company is increasingly falling behind in the semiconductor industry, prompting speculation about a potential sale to TSMC and Broadcom amid its search for a permanent CEO.
For TSMC, the acquisition of Intel’s foundries would slightly increase its already dominant 64.9% market share of the global foundry market, where Samsung holds a distant second at 9.3%, and Intel just 1%. This acquisition might hinder Intel’s attempts to win over some of TSMC’s fabless clients. Additionally, acquiring Intel’s U.S. foundries might support TSMC’s strategy to diversify its manufacturing outside Taiwan and mitigate exposure to U.S. tariffs. Nonetheless, potential antitrust challenges and investor concerns could arise as TSMC evaluates the necessity of acquiring Intel’s foundry business given the x86 CPU market’s stagnation.
For Broadcom, integrating Intel’s chip design unit could enhance its capability to produce its own x86 CPUs and discrete GPUs, complementing its established presence in the data center market, where its AI-oriented chip sales saw significant growth. This strategic move could position Broadcom to compete with AMD, Nvidia, and more diversified chipmakers like Texas Instruments. Nevertheless, any acquisition would face regulatory scrutiny, and AMD’s existing cross-licensing agreement with Intel might allow it to block such a sale.
While these potential deals generate considerable speculation, investors are advised to approach them cautiously. Even if TSMC and Broadcom express interest in acquiring Intel’s divisions, regulatory approvals could take years. Alternatively, they might opt to invest in Intel’s segments rather than acquire them outright. As such, investors might consider evaluating these companies on their standalone merits, acknowledging Intel’s current challenges, while recognizing TSMC and Broadcom as stable long-term investments.