Beleaguered chipmaker Intel (INTC) could be broken up into pieces under deals being considered by rivals Broadcom (AVGO) and Taiwan Semiconductor Manufacturing (TSM).
According to The Wall Street Journal, Broadcom is eying Intel’s chip design operations while Taiwan Semiconductor is interested in the chipmaker’s manufacturing plants. Both companies have been pursuing these plans separately, but as each would want another company to take the remaining pieces, a Broadcom-TSM pairing could be a perfect match.
Intel has fallen far behind the competition in artificial intelligence and data centers. Its foundry business, which was supposed to differentiate Intel from the competition, has failed to gain any traction.
Last year, the chipmaker separated the foundry operations into a standalone subsidiary in a bid to raise outside funding. It has spent $25 billion on its operations in each of the last two years. The latest earnings report gave investors some hope of a recovery, but it remains a multi-year strategy that is fraught with risk.
Intel has been hoping the CHIPS Act passed by the Biden administration to encourage investment in U.S. semiconductor companies and the Trump administration's plan to make the U.S. the global technology center would help elevate its performance. Intel has announced plans to invest $100 million in U.S. manufacturing and plans to build "the largest AI chip manufacturing site in the world."
Over the last four years, INTC stock lost 60% as rivals like Nvidia (NVDA) and Advanced Micro Devices (AMD) either stole market share or dominated their respective fields. Intel has been left spinning its wheels.
Content with its position atop the PC market, Intel was late to mobile chips and failed to even pursue AI technology.
The Journal report says Broadcom is eying a bid for Intel’s chip design and marketing divisions, but would want to find a partner for its manufacturing operations.
Conversely, Taiwan Semiconductor Manufacturing is considering buying Intel’s chip plants, but as part of a consortium to take over the rest of the business. The Journal notes splitting up Intel would align with industry trends to specialize in one side of the business or the other, not both.
Intel’s problems are complicated by the fact it is not operating with a CEO. Pat Gelsinger resigned in December and the chipmaker has been running on an interim basis with two co-CEOs.
INTC stock is racing 9% higher today on the hope of a breakup. Its shares were up over 23% last week, and had been even higher before closing lower on Friday. Yet shares remain 45% below their 52-week high and its valuation lags far behind Nvidia.
A buyout or breakup of Intel presents investors with their best opportunity to unwind a languishing investment. Yet it is not without its problems.
Intel’s factories are set up to produce Intel chips, retooling them to manufacture Taiwan Semiconductor chips could be a significantly expensive proposition. TSM might also have trouble sending its engineers to the U.S. to oversee production, considering the tensions between the U.S. and China.
However, if a bid does formalize from Broadcom or TSM, expect to see INTC stock race even higher.
