INTCxTSMC Speculation Thread
So, what do we know so far?
The US Government wants to put domestic semiconductor manufacturing as their highest priority for national security and to ensure the USA is a self-sufficient leader in AI. You can have all the fancy design companies like Nvidia, AMD, Qualcomm, but without fabs these companies are worth less than the paper their stock is printed on.
There are only three companies in the world that have the fabs and the know-how to build these chips at the leading edge - TSMC, Intel & Samsung. Unfortunately, Samsung is arguably failing in this at the leading edge right now, but they are building a fab in Texas which is worth remembering.
Intel has by far the largest fab capacity in the USA. They are also the ONLY company with research & development in the USA. They are also a trusted supplier to the US military/DoD and have multi-year multi-billion dollar contracts to supply the US military. There is not a chance in hell that a foreign company like TSMC, even as an ally, could take over such a crucial role.
The interim executive chairman of Intel, Frank Yeary, wants to damage control the Intel share price. The stock has been trading at 80% of book value recently which is absolutely unprecedented for a tech stock and even a manufacturing stock (which usually go at 2x book value if they have any worth). In all my time investing I have never seen a stock this undervalued in the sector that I primarily invest in (big tech & manufacturing). If anyone knows of any case studies that are more dramatic than Intel, please let me know as I’m genuinely interested to hear about them.
Frank Yeary wants to “maximise shareholder value”. How does he achieve this? Does he press the US Government to apply 100% tariffs on TSMC to try and drive external customers to fill up Intel fabs? Does he try and sell off the Fabs completely to get them off the books so that Intel Product can rebound to its intrinsic ~$50 dollar share price? Does he try and get 49% buy-in to Intel fabs to give them more short term liquidity? I’ve even seen wild rumours of Broadcom/Qualcomm making another bid for the Intel Product group.
What does this mean for Intel shareholders? Well, currently trading at book value (and a valuation far below the fair value price of Intel products), there certainly seems like a lot of room for the stock price to run in any of the above scenarios. Let’s play around with them and speculate -
Scenario A: Trump applies 100% tariffs to TSMC. This impacts Intel in the short term as they currently outsource a lot of their silicon to TSMC. But then next year they are in a much better position and the share price goes up as they are making most of their own silicon in-house and likely to get more external interest driven to their fabs.
Scenario B: Frank Yeary, Trump and TSMC agree some deal where TSMC takes over all of Intel’s fabs, R&D and fab IP. TSMC buys Intel’s fabs off them, likely with financial backing from US-based big tech who are incentivised to invest in their future as a geopolitical safeguard. Intel stock rockets to $50 as they become profitable again, TSMC likely takes a short term significant hit but then has a total global monopoly in semiconductor manufacturing with a secure US footprint in addition to their Taiwan footprint, making them also immune to geopolitical events or natural disasters.
Scenario C: In this scenario, US big tech and TSMC +/- PE such as Apollo are encouraged to invest in Intel Foundry to get up to a 49% stake. TSMC and by extension, big tech, avoid 100% tariffs in this scenario. Intel would remain in overall control and lead the R&D. TSMC may provide some assistance with optimising their contract foundry efficiency model and facilitating customer onboarding to ensure that Intel’s fabs are filled and therefore economically viable. TSMC remains the global number 1 contract manufacturer but Intel Foundry is given the nutrients it needs to become global number 2, with a secure US-footprint to safeguard against geopolitical issues that are likely to arise in the next 5-10 years. Intel share price rises significantly if the fabs are de-risked financially. If the Foundry company is spun off into a totally separate company, which is possible, Intel investors may or may not get shares in this company. I think it’s unlikely to be public and more likely to be private. Hopefully it would remain under the Intel umbrella as long as 51% control maintained.
Scenario D: Intel is sold for parts. TSMC and big tech buys the fabs, Broadcom buys Intel product (the Qualcomm rumour is ridiculous as they don’t have the firepower to buy Intel product even if they threw in every dollar and stock they had). Broadcom, however, does have the ability to buy Intel products by putting in cash and stock in a ratio of likely 1:5. Intel investors would get a payout at probably around $40-50 per share as a combination of cash and Broadcom stock.
Personally, I think Scenario A and C are most likely. Scenario B doesn’t make sense for national security reasons and it’s a hell of a lot to ask TSMC to take on. Scenario D doesn’t make sense either for the same reasons as B, but also why would Frank Yeary want to suddenly sell off the profitable part of the business?
Discuss! All thoughts and opinions welcome from Intel, TSMC & Broadcom investors alike.