Reports suggesting a potential groundbreaking joint venture between semiconductor giants Intel (NASDAQ:INTC) and Taiwan Semiconductor Manufacturing Company (TSMC) have sparked market excitement, but analysts at Citi remain deeply skeptical, advocating instead for Intel to abandon its external chip manufacturing ambitions.
News broke recently, reportedly originating from The Information, that Intel and TSMC were exploring a partnership. This potential deal involved TSMC operating Intel’s fabrication plants (fabs) and acquiring a 20 percent stake in the newly formed entity. The speculation alone was enough to send Intel’s stock surging by 7 percent as investors mulled the implications of such a high-profile collaboration.
However, Citi quickly moved to temper expectations, arguing that the fundamental operational differences between the two chip titans make such a venture highly improbable and likely doomed to fail. “We do not believe TSMC operating/forming a JV with Intel would work given differences in manufacturing and operations,” Citi stated firmly in a note to clients. These inherent contrasts in how the companies run their complex manufacturing processes present significant integration challenges, according to the bank.
Beyond the practical hurdles of combining distinct operational philosophies, Citi also expressed strong reservations about the core appeal of Intel’s foundry business to potential customers, even within a hypothetical JV structure. The analysts specifically questioned why fabless semiconductor companies – businesses that design their own chips but rely on external manufacturers like TSMC – would choose to invest in or utilize an Intel-linked foundry.
“We also question the wisdom of fabless companies investing in this JV,” the Citi note continued. The firm delivered a blunt assessment of Intel’s track record in the contract manufacturing space, stating, “We believe Intel foundry has proven over years it cannot compete with TSMC.” Citi warned that compelling fabless leaders, such as Qualcomm (QCOM) or Broadcom (AVGO), to use what it deems “vastly inferior manufacturing” capabilities compared to TSMC’s established leadership could severely damage their own shareholder value.
Given these significant doubts, Citi’s recommendation for Intel is stark: exit the merchant foundry business entirely. The bank views Intel’s push to manufacture chips for external clients as a high-risk, low-reward endeavor that acts as a substantial drain on the company’s cash flow.
“Given the highly unlikely chance of Intel merchant foundry succeeding and subsequent drag on cash flow, we continue to believe Intel would be best served by exiting the merchant foundry business and focusing on its core CPU business,” the analysts advised. This strategic pivot would allow Intel to redirect resources and attention back to its traditional stronghold – designing and producing its own central processing units, where it historically dominated the market.
Despite the temporary share price boost fueled by the JV rumors, Citi’s overall assessment of Intel remains cautious. The firm reiterated its Neutral rating on Intel stock, maintaining its price target of $21.00 per share. This target reflects a valuation based on 13 times Citi’s estimated earnings per share for Intel in the calendar year 2026.
The conflicting perspectives underscore the critical juncture Intel finds itself at. While the allure of partnering with the world’s leading foundry manufacturer generates headlines, influential voices like Citi highlight the immense competitive and operational obstacles Intel faces in its costly bid to become a major player in the contract chip-making arena. The debate centers on whether Intel should continue pursuing its ambitious foundry strategy or retrench and concentrate on revitalizing its core product lines.
