Taiwan's TSMC (2330.TW), the world's biggest chipmaker, is considering taking a controlling stake in Intel's (INTC.O) factories at the request of U.S. President Donald Trump's officials, Bloomberg News reported on Friday.
Trump's team raised the idea of a deal between the two firms in recent meetings with officials from TSMC, and they were receptive, Bloomberg reported, citing a person familiar with the matter.
The talks are in very early stages, and the exact structure of a potential partnership has not been established. But the expected result would have TSMC fully operating Intel's U.S. semiconductor factories, Bloomberg reported.
Such a deal could throw a financial lifeline to Intel, which has struggled to restore its lost chipmaking glory as it failed to capitalize on an AI boom and poured billions of dollars into becoming a contract chip manufacturer - a transformation that is yet to materialize.
Intel shares closed down 2.2% on Friday, while TSMC's U.S.-listed shares closed up about 1%.
"Combining TSMC's expertise and engineers with Intel's infrastructure could help kick-start President Trump's dream of having the U.S. become the center of the chip universe," said Brian Jacobsen, chief economist at Annex Wealth Management.
But such a deal would need deep concessions on both sides.
Should TSMC accept an arrangement to run Intel's factories, it would have to make significant changes to the U.S. chipmaker's operations because each chip manufacturer has distinct methods and techniques for operating factories.
To operate Intel's fabs, TSMC would also likely need to reveal some of its secret techniques and processes to Intel employees.
On its part, Intel would have to concede the fact that its manufacturing operations would become a totally different entity, likely with a completely different work culture.
As well, TSMC fully operating Intel's factories, known as fabs, also raises questions about Intel's key strategy of manufacturing the chips it has designed. Most chipmakers are "fabless" - outsourcing to the likes of TSMC, which offers considerable cost savings.
"If Intel moves down this path, you focus on being a semiconductor design company. So you end up looking more like a Broadcom (AVGO.O) or a Marvell (MRVL.O) or an AMD," Wedbush Securities analyst Matthew Bryson said.
TSMC and Intel declined to comment. The White House did not immediately respond to a Reuters request for comment.
TARIFF EXEMPTIONS?
Intel, which ceded its manufacturing technology edge to TSMC, is among a few chipmakers that both design and manufacture semiconductors. TSMC is now the world's largest contract chipmaker which boasts a market valuation about eight times larger than that of Intel.
The Taiwanese contract chipmaker, whose customers include AI chip leader Nvidia (NVDA.O) and AMD (AMD.O), which has consistently eaten into Intel's share of the personal computer chip and server central processor market.
"Ironically, enough, TSMC might look for some tariff exemptions in order to make this happen and allow for efficient and effective flow of equipment and materials," said Michael Ashley Schulman, chief investment officer at Running Point Capital.
Trump tasked his economics team on Thursday to come up with plans for reciprocal tariffs on every country taxing U.S. imports, ramping up prospects for a global trade war.
Former Intel CEO Pat Gelsinger, who was ousted last year, set sky-high expectations for Intel's manufacturing and AI capabilities among major clients but fell short, losing or canceling contracts, Reuters had previously reported.
Intel's shares lost about 60% of their value last year as the capital-intensive bid to bolster manufacturing - a strategy championed by Gelsinger - strained the company's cash flow and ultimately led to it cutting about 15% of its workforce.
The success of Intel's 18A chipmaking technology, slated for this year, is key to the company's manufacturing ambitions
It is unclear whether Intel is open to a transaction, according to the report.
The arrangement may involve having major American chip designers take equity stakes, along with support from the U.S. government, Bloomberg reported, adding that it meant the venture would not solely be owned by a foreign company.
Intel is among the largest beneficiaries of the United States' push to onshore critical chip manufacturing.
Under the previous administration, the U.S. Commerce Department in November said it was finalizing a $7.86 billion government subsidy for Intel.
