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Investment bank JPMorgan believes that the risks to TSMC from Intel reviving its foundry business are minimal. According to reports, the Trump administration is encouraging investment in Intel’s foundry and taking a stake in the firm. However, JPMorgan suggests that this revival could be beneficial for TSMC as well, given its dominant position in global contract chip manufacturing. The bank advises Intel to focus on older manufacturing processes like 5-nanometer and 3-nanometer nodes to establish a solid base for its foundry business. This approach is intended to gain the trust of major clients such as NVIDIA and Apple.
JPMorgan argues that Intel’s production challenges extend beyond mere capital injection issues. TSMC shares have not benefited from reports suggesting it might monopolize leading-edge chip manufacturing due to potential government scrutiny and regulatory action. Consequently, JPMorgan believes Intel’s entry into the foundry market will help TSMC avoid such accusations.
To improve its foundry business, JPMorgan suggests that Intel must consistently execute on multiple manufacturing processes to build confidence among major chip designers. Cash flow streamlining is identified as the key to solving Intel’s financial woes, with the company’s free cash flow for fiscal 2024 being negative $15.7 billion. Although Intel has improved its TTM free cash flow by $5 billion over the past year, it remains negative at $10.9 billion.
Intel’s Q2 2024 saw a significant improvement in cash flow from product business to negative $1.5 billion under CEO Lip-Bu Tan’s leadership. Property and equipment purchases were the largest drain on Intel’s cash flow, with a $3.6 billion outflow compared to last year’s $5.7 billion.
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By focusing on older manufacturing technologies, JPMorgan believes that Intel can more easily streamline its foundry business without triggering competitive concerns from customers. This approach could help Intel establish itself in the market more effectively.
