Intel's "False Competition" Only Benefits Taiwan Semiconductor Manufacturing

Deep News
Aug 21

The market has overly exaggerated the threat that Intel's foundry business "revival" could pose to Taiwan Semiconductor Manufacturing.

On August 21, JPMorgan's Technology and Telecoms team stated in their latest research report that Intel's foundry "false competition" actually benefits Taiwan Semiconductor Manufacturing more.

The firm's analysts believe that Intel's foundry business existence actually helps Taiwan Semiconductor Manufacturing avoid government regulatory pressure stemming from its monopolistic position. JPMorgan also noted that customer participation in Intel's foundry "revival plan" is not purely negative, and Intel's foundry faces fundamental challenges that far exceed funding issues.

The firm stated that Taiwan Semiconductor Manufacturing will continue to maintain over 90% market share in advanced process領域, maintaining an "overweight" rating on Taiwan Semiconductor Manufacturing with a target price of NT$1,275.

The Illusion of "Having Choices" More Valuable Than Absolute Monopoly

JPMorgan analysts noted that aside from initial market euphoria (in the second half of 2020, when the market expected Intel to massively outsource manufacturing operations, Taiwan Semiconductor Manufacturing's stock reached 25-30x P/E ratios), discussions about Taiwan Semiconductor Manufacturing potentially becoming a monopolist in advanced process foundry have not driven significant P/E ratio improvements.

JPMorgan believes this potential monopolistic position would only invite more scrutiny from government agencies while amplifying geopolitical risks—factors that typically suppress P/E ratios.

The firm believes that having a somewhat weaker competitor in the advanced process space, creating an illusion of "having choices" for customers, could actually be a more favorable situation for Taiwan Semiconductor Manufacturing. This could reduce ongoing government scrutiny pressure and lessen pressure from policies like "manufacturing reshoring to America."

Customer Participation in Intel Foundry Revival Not Purely Negative

The market might view major Taiwan Semiconductor Manufacturing customers like Apple or NVIDIA participating in Intel's foundry revival plan as direct market share losses for Taiwan Semiconductor Manufacturing. However, JPMorgan believes this is not purely negative.

Analysts point out that Intel's foundry needs to execute perfectly across at least two to three advanced process nodes to gain credibility among fabless customers and achieve significant scale in advanced processes.

Meanwhile, the product business may continue facing competitive pressure from AMD, ARM, NVIDIA, and internal chips, forcing Intel to continue outsourcing more products to the most competitive foundry—Taiwan Semiconductor Manufacturing.

Analysts believe that regardless of customer support levels, this inherent conflict of interest between product and foundry businesses is unlikely to be resolved. Therefore, Taiwan Semiconductor Manufacturing will continue maintaining over 90% market share in advanced process nodes for the foreseeable future.

Intel's Foundry Issues Far Beyond Funding

While most observers attribute Intel's foundry problems to funding issues, JPMorgan believes the fundamental challenges lie elsewhere. The research report states:

Due to severely deteriorating cash flows from the product business, Intel currently may also be unable to fund foundry-related expansion, but even when Intel was quite dominant in the CPU space and possessed leading process technology advantages, its foundry strategy never truly succeeded.

Analysts point out that the foundry business requires very different corporate culture, service mindset, cost efficiency focus, and customer-centric innovation—qualities that are difficult for a company that has focused almost entirely on products throughout its existence to cultivate in a short time.

Intel's foundry best chance for success would be adopting an N-1 approach (considering that even N-2 or N-3 nodes lack second suppliers in the foundry space), which would reduce potential customer risks and might be easier for capacity scaling, rather than competing head-to-head with Taiwan Semiconductor Manufacturing in advanced processes.

However, JPMorgan warns that as the leading domestic foundry receiving U.S. government investment, this cautious approach might not be a viable strategy.

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