I know that any time I talk about semiconductors, a significant percentage of my readership’s eyes glaze over, but this is Big Freaking News.
Intel shares rose 6% in premarket trading after Reuters reported that Taiwan Semiconductor Manufacturing, or TSMC, had approached US chip designers Nvidia, Advanced Micro Devices, and Broadcom about taking stakes in a joint venture that would operate the struggling chipmaker’s factories.
Four sources told Reuters that the Taiwanese chipmaking giant would run Intel’s foundry division under the new proposal, producing chips tailored to customer requirements but not owning more than 50%. The sources added that Qualcomm has also been approached about the venture.
For those unfamiliar with the semiconductor space, that’s a Murderers Row of heavyweights, including the top three semiconductor companies by market cap:
TSMC is far and away the largest chip foundry (a company that builds chips for other companies, but doesn’t design its own chips) in the world, and the one with a clear technological lead over everyone else. TSMC has the third largest market cap of any semiconductor company.
Broadcom is the second-largest semiconductor company in the world by market cap, and they have their fingers in a lot of different pies: networking, wireless, storage, you name it. They’re generally considered a fabless chip designer, but the company is such a weird amalgamation of other companies (what we call Broadcom used to be Avago until they acquired Broadcom in 2016) that they might still have a lower end fab or two lurking somewhere in the company. They also use TSMC as a foundry, though I’m not sure how extensively. They’ve also recently made a big move into software, acquiring CA Associates and VMWare, among others.
Nvidia is a fabless chip designer (the sort of company that contracts with foundries to fab their chips) that went heavily into high end GPUs (the chips that render video for your PC, in Nvidia’s case geared toward high end games and other highly demanding tasks), then crypto-mining chips, and more recently into chips geared for AI applications, all very lucrative market segments, which has made Nvidia not only first among semiconductor market cap, but among the largest companies by market cap in the world (along with Apple and Microsoft). Nvidia has their chips fabricated by TSMC, as well as some by Samsung and GlobalFoundries, which was spun off from…
Advanced Micro Devices, which used to be an Integrated Device Manufacturer (or IDM, a company designs their own chips and builds them in their own fabs) creating Intel-compatible CPUs, but eventually spun off their fabrication plants as GlobalFoundries because they couldn’t keep up with Intel’s capital spending. AMD also has some of their highest end chips fabricated by TSMC. If AMD were to help take over Intel, it would be an extremely ironic ending to a longtime rivalry.
Qualcomm is a lot like Broadcom: A mostly fabless design house with its fingers in lots of different pies, and they’re about the sixth largest semiconductor company by market cap. Broadcom tried to acquire Qualcomm in 2017-18 and was blocked by the Trump45 administration.
Intel is an IDM, and for decades was the undisputed “chipzilla” of the semiconductor world. Intel’s CPUs were the dominant processor for the vast majority of the last 40 years and a huge ingredient for helping create the PC revolution. Intel used to be the technology process leader as well, but somewhere along the way they screwed up their sub-10nm process nodes, allowing TSMC to take the process technology crown. Indeed, they screwed up so badly that they’ve been forced to have TSMC fab some of its highest end chips. Despite having a vast number of fabs, Intel’s market cap has slipped down to 16th among semiconductor companies.
Back to the piece:
The sources noted that the Trump administration is exploring ways to revive Intel and strengthen US manufacturing under the ‘America First’ agenda. They added that TSMC’s joint venture pitch to chip designers took place before the company, alongside President Trump, announced plans last month to invest $100 billion in semiconductor manufacturing in the US, building on its existing $65 billion investment in its Phoenix, Arizona, factories.
Any deal between TSMC and Intel would be subjected to approval from the Trump administration.
If the Trump Administration’s goal is to increase available sub-10nm wafer starts (and it should be) and maintain American control of Intel’s fabs, then this proposal is a win-win. Intel’s fabs plus TSMC’s tech would create a foundry powerhouse. It wouldn’t happen overnight (nothing in semiconductors happens overnight), but probably in 12-24 months, depending on how quickly the new entity can acquire the necessary pieces of equipment to upgrade Intel’s fabs to thee new tech (I’m guessing that the availability of ASML steppers will, as usual, be the gating factor). And all this without the tens of billions in taxpayer subsidies for the CHIPS Act.
If this goes through, it would have mostly winners, with a few losers:
Winners
Every company that’s part of the deal. TSMC gets to radically expand production capacity without spending $20 billion+ to build a new fab. Nvidia, AMD, Broadcom and Qualcomm gain a lot more capacity for expanding production of their high end chips. Ditto for Apple (who’s not part of the deal, but who is TSMC’s biggest customer and a big demand driver for cutting edge fab capacity) and every other consumer of sub-10nm chips.
AMD additionally gets the egoboo of partially taking over its longtime hated rival and confirming it’s crown as the x86/x64 chip manufacturer of choice. Plus their then-risky decision to spin off GlobalFoundries looks like a genius move in hindsight.
The Trump Administration, which gets to take credit for vastly increasing American Foundry capacity at zero additional taxpayer expense and keeps Intel under American control.
Semiconductor equipment manufacturers like ASML, Applied Materials, LAM Research, Tokyo Electron and KLA (short term). It’s likely most or all of those companies (along with smaller players like Axcelis and Teradyne) will receive a bump in extra sales from leveling up Intel’s fabs to run TSMC’s process.
American chip startups: With so much high end capacity becoming available, existing and potential chip startups are going to look like more attractive investment capital opportunities.
ARM Holdings: ARM doesn’t make chips, they’re an IP design house that licenses their functional chip blocks to other chip designers. Just about every foundry and IDM is a licensee (yes, including Intel and TSMC), so unleashing more chip designs will almost certainly result in more royalties for ARM. (Nvidia tried to buy ARM in 2020, and regulators quashed that idea good and hard.)
Intel investors, who will either get a big lump-sum payment or shares in the new, probably far more profitable company (depending on how the buyout is structured).
Even Intel wins long-term by unleashing existing fab capacity to take on new business not tied to its faltering CPU manufacturing model. And actually, with TSMC’s process, Intel has a chance to recover in the CPU space as well.
Losers
Samsung: Along with TSMC and Intel, Samsung (which has both IDM and foundry components) has some of the best sub-10nm process tech in the world. They gain a whole lot of unleashed competition and stand on the outside looking in.
Intel‘s dreams of reclaiming their spot at the top of the heap, and suffering the indignity of being partially owned by AMD. How the mighty have fallen.
Every Chinese fab, which goes from “very far behind” to “even further behind.”
Semiconductor equipment manufacturers (long term): They better enjoy the out-of-band upgrade money from retrofitting Intel’s fabs, as it will likely mean a significant delay in anyone building a new cutting edge wafer fab for quite a while. And having two of their biggest customers team up is probably going to put them under a lot of downward pricing pressure.
GlobalFoundries (and other trailing edge foundries) might lose some business, but there’s very little overlap between Intel/TSMC cutting edge processes and GlobalFoundries trailing-edge fabs. Ditto UMC.
Are there anti-trust concerns with such a heavy accumulation of cutting edge process technology? Oh yeah. Big time. But almost all of those concerns were already there in some form or another thanks to the interconnected “cooperation” nature of the industry. All those companies going in with TSMC were already getting chips fabbed by TSMC. Samsung could try to claim that the deal would result in TSMC having a de-facto monopoly on sub-10nm foundry business, but it wouldn’t start with one, and that business isn’t the whole of foundry business (though it is the most profitable part), much less semiconductors as a whole.
Given that this would go a long way toward achieving Trump’s goal of increasing cutting edge fab capacity in America, I would imagine that the Trump47 administration could very well be persuaded to let this deal go through.
IStandWithTrump 
(@capeandcowell)