• There has been recent chatter about TSMC and other large US tech companies contemplating an equity investment or buyout of Intel’s foundry business.
• We had previously floated the idea of an industry consortium buyout of Intel Foundry; we had not considered TSMC as a potential investor but we don’t think it’s far-fetched in the current geopolitical climate.
• The threat of “25, 50, or 100% tariffs” per Trump and the fact that the vast majority of TSMC’s customers are US-based companies could change the calculus enough for TSMC to acquiesce to concessions; we do not believe majority ownership or control of Intel Foundry by TSMC is a likely scenario on national security grounds.
• Talks of a “technology transfer” from TSMC to Intel Foundry would also not be without precedent; Samsung licensed out its 14nm node to GlobalFoundries in 2014, and GlobalFoundries hit volume production ~18 months later.
• Valuing standalone Intel Foundry is tricky as it has significantly more underutilization costs than peers, and revenue is constrained by secular pressure on x86 CPU demand and limited ability to backfill older nodes with external customer volumes.
• Peer EV/S multiples imply a $50-$150 bn value for Intel Foundry; a net PP&E approach suggests further upside (>$250 bn), though we think this represents a top end that probably could only be realized with significant operational changes and technology licensing from TSMC.

Relative Value

We are upgrading our recommendation on Intel from Underperform to Market perform. This is underpinned by recent chatter about TSMC and other large US tech companies contemplating an equity investment or buyout of Intel’s foundry business. We previously floated the idea of an industry consortium-funded deal in September, though the emergence of TSMC as a potential investor is a surprise. Overall, we don’t think it’s a far-fetched idea as Trump’s use of potential tariffs as leverage could be a deciding factor for TSMC’s involvement. Whether TSMC is ultimately involved or not, Intel’s post-Gelsinger leadership team seems ready to downsize its foundry position. Intel 10Y and 30Y bonds have tightened by ~15 bp over the last few trading days on the back of these rumors.