Citi Says Intel-TSMC JV is a 'Wrong Move' - Here's Why!

Ladies and gentlemen, buckle up! We've got a bombshell in the semiconductor world. Citi just dropped a bombshell on the potential Intel-TSMC joint venture, calling it "the wrong move." Let's dive into why Citi thinks this partnership is a recipe for disaster and what Intel should do instead.



First things first, let's talk about the elephant in the room. Intel and TSMC are like night and day when it comes to their business models. TSMC is a pure-play foundry, focusing solely on manufacturing efficiency and economies of scale. Intel, on the other hand, designs and manufactures its own chips, which involves higher R&D costs and capital expenditures. This difference in business models could lead to operational inefficiencies and conflicts within the joint venture.

Now, let's talk about the elephant in the room. TSMC is a leader in advanced manufacturing technologies, including 3nm, 5nm, and 7nm processes. These advanced nodes are in high demand and command higher prices, contributing to TSMC’s higher profit margins. Intel, on the other hand, has faced delays and challenges in advancing its manufacturing processes, which has impacted its competitiveness and profitability. This disparity in technological capabilities could create friction within the joint venture, as Intel may struggle to keep up with TSMC's advanced processes.

Next, let's talk about the elephant in the room. TSMC’s large-scale operations and high production volumes enable it to achieve economies of scale, reducing per-unit costs and increasing profit margins. Intel’s integrated device manufacturing model, while comprehensive, does not benefit from the same level of scale efficiencies as TSMC’s foundry model. This difference in scale could lead to cost inefficiencies within the joint venture, as Intel may not be able to match TSMC's production volumes and cost savings.

So, what should Intel do instead? Citi suggests that Intel should exit the merchant foundry business and stick with manufacturing its own chips. This strategy would allow Intel to leverage its existing infrastructure and expertise in chip design and manufacturing. By focusing on its core competencies, Intel can potentially reduce costs and improve efficiency.

But that's not all! Intel should also invest heavily in advanced manufacturing technologies to catch up with competitors like TSMC. By investing in similar technologies, Intel could enhance its competitive position and attract more high-margin business.

And let's not forget about diversification! Intel could diversify its revenue streams by expanding into new markets and product lines. For example, TSMC serves a diverse range of customers, including major players like Apple, AMD, and Nvidia. This diversified customer base provides a steady stream of high-margin business. Intel could follow a similar approach by targeting new markets such as AI, cloud computing, and high-performance computing, which are currently driving demand for advanced chips.



But wait, there's more! Intel could form strategic partnerships and alliances with other technology companies to share resources and expertise. For instance, the potential joint venture with TSMC could provide Intel with access to advanced manufacturing capabilities and expertise. However, Intel should carefully navigate such partnerships to ensure that it retains its technological edge and workforce stability.

And finally, Intel should implement cost-reduction measures and improve operational efficiency to enhance profitability. For example, Intel initiated a US$10 billion cost-reduction plan in August 2024, aiming to enhance operational efficiency and market competitiveness. By focusing on cost management and operational excellence, Intel could improve its gross profit margin and overall profitability.

So, there you have it! Citi's take on the Intel-TSMC joint venture and what Intel should do instead. Stay tuned for more updates on this developing story!