What Intel's Breakup Would Mean for TSMC and Broadcom
Intel (NASDAQ: INTC) might be split up and sold to Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC, and Broadcom (NASDAQ: AVGO), according to the latest rumors. The chipmakers haven't responded to those reports, but such a deal could shake up the semiconductor industry.
The most recent report from The Wall Street Journal claims Intel held "informal" talks to sell its foundry business to TSMC and its chip design business to Broadcom. Both rumored deals would likely face intense regulatory scrutiny, but we should discuss how Intel got here -- and what its breakup and sale might mean for TSMC and Broadcom.
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How did Intel fall this far?
Intel is still the world's largest designer and manufacturer of x86 CPUs for PCs and servers. However, it missed the leap to mobile chips and ceded that growing market to Arm's power-efficient chip designs, and its foundries fell behind TSMC and Samsung in the "process race" to manufacture smaller and denser chips.
As Intel struggled with shortages and delays, its smaller x86 competitor, AMD, pulled ahead with a stable supply of cheaper and more power-efficient chips by outsourcing its production to TSMC. Instead of catching up to TSMC, Intel repeatedly shifted its short-term strategies under three CEOs over the past decade.
Under Pat Gelsinger, who served as Intel's CEO from 2021 to 2024, the chipmaker tried to expand and upgrade its foundries to catch up to TSMC and Samsung. But those capital-intensive efforts coincided with the broader slowdown of the PC market, and it struggled to ramp up its production of its Meteor Lake CPUs to fend off AMD. Its CPUs also became less relevant than Nvidia's GPUs as companies scrambled to upgrade their data centers to handle the latest artificial intelligence (AI) applications.
Intel won't go bankrupt anytime soon, but it's clearly being left behind in the semiconductor race. That's why it isn't too surprising that the chipmaker, which still lacks a permanent CEO, might be mulling a sale to TSMC and Broadcom.
What would that deal mean for TSMC?
TSMC is already the world's largest and most technologically advanced contract chipmaker. The top fabless chipmakers -- including Nvidia, AMD, and Apple -- all outsource the production of their smallest chips to TSMC.
TSMC controls 64.9% of the global foundry market, according to TrendForce. Samsung ranks a distant second at 9.3%, while Intel only holds 1% of the market. Therefore, buying Intel's foundries would only slightly increase TSMC's market share, but it would snub Intel's fledgling efforts to pull away some of its fabless clients.
Taking over Intel's U.S. foundries could also accelerate TSMC's efforts to diversify its manufacturing base beyond Taiwan and reduce its exposure to the Trump administration's tariffs.
However, such a deal would likely be challenged by TSMC's investors, who might think it's unnecessary to inherit Intel's weaker foundry business, or antitrust regulators. TSMC also doesn't need to increase its exposure to the sluggish x86 CPU market when high-end data center GPUs (mainly from Nvidia) are driving most of its growth.
What would that deal mean for Broadcom?
Broadcom already sells a wide range of chips for the mobile, wireless, networking, data storage, and industrial markets. It also significantly expanded its infrastructure business by acquiring CA Technologies, Symantec's enterprise security division, and the cloud software giant VMware over the past seven years.
If Broadcom acquires Intel's chip design division, it could develop its own x86 CPUs and discrete GPUs. That would complement its own growth in the data center market, where it's experiencing robust sales of networking, optical, and custom accelerator chips for AI-oriented data centers. In fiscal 2024 (which ended last October), its sales of AI-oriented chips more than tripled to $12.2 billion and accounted for 24% of its top line.
If Broadcom bundles all those chips together, it could simultaneously challenge AMD, Nvidia, and more diversified chipmakers like Texas Instruments. But just like TSMC, Broadcom would need to clear a lot of regulatory hurdles to seal that deal.
Moreover, AMD holds a multi-decade cross-licensing deal with Intel, which grants it the power to veto any sale of Intel's x86 design business. Such a deal would also contradict Broadcom's previous strategy of inorganically expanding its infrastructure software business to reduce its exposure to the cyclical semiconductor market.
It's all speculation for now
These potential deals are generating a lot of buzz, but investors should be skeptical of these rumors. Even if TSMC and Broadcom are interested in carving up Intel, it could take years for those deals to be approved. It also seems more likely that TSMC and Broadcom could simply invest in those businesses instead of buying them outright.
So instead of buying these stocks based on those potential deals, investors should focus on them as stand-alone investments. Intel will remain the penalty box for the foreseeable future, but TSMC and Broadcom are both stable long-term investments.
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Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends Broadcom and recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
