JPMorgan says Intel should give up chip making business, concentrate on its foundry business

JPMorgan thinks that Intel should remove itself from the chip-making business, and push into its foundry business, and that the move could be beneficial to TSMC as well.

The investment firm's Technology and Telecoms team said in its latest report that Intel Foundry's "illusory competition" is actually more beneficial to TSMC, with analysts believing that the existence of Intel's foundry business could help TSMC avoid regulatory pressure that stems from its monopolistic position.

JPMorgan added that customer participation in Intel Foundry's "revival plan" is not all negative, and that the fundamental challenges that Intel Foundry face goes far beyond capital. The investment firm said TSMC will continue to maintain the lion's share of the market at 90% for advanced process nodes, with JPMorgan adding an "Overweight" rating on TSMC with a target price of NT$1275.

The firm believes that Intel needs to consistently execute on multiple manufacturing process nodes in order to convince customers that it can flawlessly produce chips, and slowly win the confidence of major US chip designers including NVIDIA and Apple.

This is where another issue arises: if Intel successfully scales its foundry business with successful launch after successful launch, the fact that it also makes its own in-house chips won't be a good look for gaining consumer trust. Intel is having to run two huge semiconductor juggernauts at once: its own chip-making business, as well as fluffing up and getting its foundry business into the spotlight against the likes of TSMC (which has semiconductor fabs on American soil).

JPMorgan also notes that Intel's cash flow from its product business is not enough to fund its foundry division, adding that Intel being a product-focused company throughout its history, will find it hard to focus on customer needs and cost efficiency when it comes to its foundry business. As a result, the investment firm says Intel should be focusing on older manufacturing technologies like 5nm and 3nm, where Intel might find it an easier path to streamline the foundry business, and establish itself without taking on competitive concern from its customers.