The Split of Intel: What Impact Does It Have on the Semiconductor Foundry Industry Landscape?

If Intel considers strategic options such as closing some factories, selling assets, and possibly splitting or divesting its foundry and product design teams, it would be a slight positive for TSMC.

Previously, Intel had announced cuts to capital expenditures, reducing its fiscal year 2024 capex from $31-33 billion to $25-27 billion, and is expected to further decrease to $20-23 billion in fiscal year 2025, adjusting some new factory expansion plans.

Should Intel decide to cut capital expenditure further or halt new wafer fab production, this will directly impact its foundry capacity. Given the current global shortage of cutting-edge technology, such measures could push the market further towards TSMC, especially with TSMC also expanding its business footprint.

Intel's product division, to remain competitive, may have to outsource more core computing products to TSMC. As for the foundry business, given that it depends on the ability to fund expensive frontier R&D and capacity construction, the outlook for Intel in this area is less clear.

Even as an independent entity, Intel's foundry division is unlikely to become a strong competitor to TSMC in leading-edge technology within the next 3-5 years."

Such a merger is unlikely to succeed. In the second quarter, Intel's foundry operating margin was -65%, far below TSMC's 42.5%. And due to weaker overall demand for Intel products, revenue in 2025 will reach only about $5 billion, far below consensus expectations.

In the short term, this is due to capacity arrangement mistakes by the company, high costs associated with moving production from domestic US facilities to Ireland, and downstream PC and server customers still adjusting inventories after 3Q24, leading to lower-than-expected revenue. Long-term challenges stem from excessive investment in chip manufacturing and facing competition in advanced process technologies, thereby dragging down the competitiveness of the product business.

Moreover, artificial intelligence is likely to become a bigger driver for TSMC than Intel, reaching median levels in 2024 and potentially approaching 20% in 2025, while the incremental outsourcing opportunities brought by Intel are not as attractive as they were a few years ago.

Currently, the market expects Intel may reduce outsourcing after 2026 and instead use its own 18A process.