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Investment bank JPMorgan believes that the risks to TSMC from Intel reviving its foundry business are minimal. Intel's foundry business is under scrutiny once again as the Trump administration reportedly takes a stake in the firm and encourages investment. JPMorgan believes a revived Intel foundry might be beneficial for TSMC, too, as it is likely to shield the Taiwanese firm from government scrutiny due to its dominant position in the global contract chip manufacturing industry. The bank adds that Intel should focus on older nodes to set up a solid base with its foundry business and convince firms such as NVIDIA and Apple about its viability in generating stable orders.
Intel Should Focus On Older Chip Manufacturing Processes For Foundry Revival, Says JPMorgan
As is the case with several other voices on Wall Street, JPMorgan believes that Intel's production woes are greater than simply being a problem of capital injection. According to the bank, TSMC's shares have not benefited from previous reports of it becoming a monopolist in the leading-edge chip manufacturing industry because such a role is likely to evoke government scrutiny into the firm's business and potential regulatory action.
Consequently, the bank concludes that Intel's push into the foundry industry will be beneficial for TSMC as it will enable the Taiwanese firm to avoid accusations of being a monopoly in leading-edge chip fabrication. JPMorgan then proceeds to lay out a potential path for Intel to turn around its foundry business. It believes that Intel has to consistently execute on multiple manufacturing processes to convince customers that it can flawlessly produce chips and gain the confidence of major chip designers such as NVIDIA and Apple.
JPMorgan outlines that even if Intel manages to expand its foundry business, the fact that it also sees its own chips is likely to stand in the firm's way when it comes to gaining customer trust. On the turnaround front, it points out that cash flow streamlining, instead of capital injection, is the key to solving Intel's financial woes. In particular, the bank shares that Intel's cash flow from the product business is insufficient to fund its foundry division.
Intel's overall free cash flow for fiscal 2024 was a negative $15.7 billion, and the firm has grown it by $5 billion for the trailing twelve-month period. The TTM free cash flow is negative $10.9 billion, show figures from Yahoo Finance, while on a quarterly basis, the latest figures mark a significant year-over-year improvement.
While the free cash flow was negative $2.4 billion during Q2 2024, under CEO Lip-Bu Tan's leadership, Intel increased it to negative $1.5 billion. During its latest quarter, property and equipment purchases were the biggest drain on Intel's cash flow as they marked a $3.6 billion outflow for a sizable drop over last year's Q2 figure of $5.7 billion.
JPMorgan's analysts add that with Intel being a product-focused company throughout its history, it will find it difficult to focus on customer needs and cost efficiency with regard to the foundry business. As a result, they outline that by focusing on older manufacturing technologies, such as 5-nanometer and 3-nanometer, Intel might find it easier to streamline the foundry business and establish itself without eliciting competitive concern from its customers.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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