Wolfe Research: TSMC's (TSM.US) entry is "Intel's (INTC.US) best option"

Wolfe Research stated that even after announcing a $100bn investment in the US this month, TSMC (TSM.US) is still seeking a joint venture to operate Intel's (INTC.US) factories, which remains Intel's "best option". Wolfe Research analyst Chris Caso wrote in a note to clients: "For some time, we have believed that such a (joint venture) would be Intel's best option, as we believe the company lacks the ability to independently complete the fab installation. We believe that if the technical challenges of running TSMC's processes in Intel fabs can be overcome, a partnership with TSMC would be the highest probability and lowest risk way to get fabs installed." TSMC has reportedly discussed a joint venture with Intel to operate its fabs, with TSMC's customers AMD (AMD.US), Nvidia (NVDA.US), Qualcomm (QCOM.US) and Broadcom (AVGO.US) investing in the venture. The timing of the discussions is unclear, but they may have taken place before TSMC announced its $100bn investment in the US over the next few years. Under the proposal, TSMC would operate Intel's fab unit, which produces chips to custom customer orders, but TSMC's stake would not exceed 50 per cent, according to people familiar with the matter. TSMC has also made a similar investment proposal to Qualcomm, the people said. Any final deal — its value is unclear — would need approval from the Trump administration, which does not want Intel or its fab unit to be fully foreign-owned. If such a deal were to happen, there are many questions, especially for Intel. The biggest one, according to Caso, is whether Intel Products would have a fixed commitment or payment obligation to the joint venture. Caso added that Intel's fabs would be "underutilised for some time" as TSMC's business may take some time to ramp up in Intel's fabs. Other outstanding questions include Intel's product road map and what happens to private equity partners such as Apollo, Caso said. For TSMC, the partnership would give it access to "much-needed" capacity in the US (though the $100bn investment was recently announced), and would take it out of Intel's competitive position, Caso said.