With outside investment lined up to separate its chip design division from its semiconductor manufacturing arm, Intel looks to be nearing a plan to split the company.
Since news and analyst reports surfaced last week suggesting that Intel was considering selling some of its business to rival chip makers, the chipmaker’s stock has been increasing gradually.
Since February 10, Intel shares have increased by over 40%, rising 16% on Tuesday to $27.39. However, there will be significant financial, technological, and legal obstacles to any agreement to divide Intel and turn around its struggling divisions.
In Oregon, a split would also have far-reaching consequences.
Intel has more employees than any other company in the state, with over 20,000 working at its locations in Washington County. The tens of billions of dollars Intel spends annually to outfit and operate its Hillsboro operations, which are staffed by a vast number of outside contractors, are vital to Oregon’s economy.
Intel is reportedly considering a deal with rival Taiwan Semiconductor Manufacturing Co., according to multiple sources. Though opinions on the details have varied, it seems possible that TSMC might help break things up by purchasing stock in Intel’s American facilities.
On Saturday, the Wall Street Journal revealed that Broadcom, a semiconductor maker based in Silicon Valley, is considering acquiring Intel’s chip design division.
Regarding the reports, Intel has refrained from commenting.
Intel was the largest chipmaker in the world for a long time. In an era when the majority of chip businesses specialize in either design or manufacturing, it stands out for design and manufacturing.
After years of falling behind TSMC due to a series of missteps in the development of new manufacturing technologies, Intel’s winning formula collapsed a few years ago. Over the past two years, those problems have gotten worse due to the surge in demand for artificial intelligence chips, a market in which Intel is essentially nonexistent.
Then, in December, Pat Gelsinge, the CEO, abruptly retired. Although Intel has not provided an explanation for his abrupt departure, it seems Gelsinger and the company’s board were at odds over the company’s course.
Without a permanent CEO or a clear plan to turn around a company whose revenues have fallen by a third since 2021, Intel has been adrift for the past two months as a result. Despite acknowledging that a split is possible, the company’s two acting CEOs have shockingly stated that the choice is above their pay grade.
Michelle Johnston Holthaus, interim co-CEO, told investment analysts in December that someone would determine that, although she did not say whose conclusion would trigger a breakup.
In an effort to cut $10 billion from its 2025 budget, Intel laid off 15,000 employees last November.In addition to laying off 1,300 Oregon workers, it also eliminated 1,700 jobs through buyouts and by failing to fill open positions.
The Biden administration was quite concerned about Intel’s problems. According to reports, the Trump administration is also concerned about the potential loss of a major local semiconductor manufacturing in the United States.
For months, the financial press has been speculating about a potential Intel buyout.Some were blatantly contradictory, while others were incredibly unrealistic.
These recent revelations are being taken seriously by Wall Street. According to a Friday story in the New York Times, Intel Chairman Frank Yeary, an investment banker who has been on the board of the business during its downfall, is discussing the conditions of the chipmaker’s dissolution.
By supporting Intel’s negotiations with other semiconductor companies, the Trump administration may also be involved, according to The Times and other news sources. At the very least, transactions that might not have passed regulatory muster in previous times may be made possible by the incoming administration’s lax antitrust enforcement policies.
According to investment analysts, any agreement to dismantle Intel would need to give its factories financial stability after they reported an operational deficit of $13 billion the previous year.
In a letter to clients this week, Bernstein analyst Stacy Rasgon stated that nothing can happen until the factories are stabilized because the product (design) groups will still be reliant on Intel’s manufacturing for the foreseeable future.
The tens of billions of dollars required to purchase Intel’s facilities and the additional billions needed to keep them outfitted with the newest manufacturing technology were beyond the means of very few businesses.
One of the few companies that could succeed at it is TSMC. Chip designers may also be involved in a transaction, according to some rumors. They may work with TSMC to purchase Intel’s plants and utilize them as contract factories, producing some chips in the United States that are now made in Asia.
However, it’s unclear if TSMC would be willing to support a competitor in the US. Additionally, the equipment used in the Taiwanese company’s manufacturing differs from that of Intel and would not mix in readily.
Brad Lin, an analyst at Bank of America, wrote to clients, “We believe that taking over Intel Foundry, one of the possible outcomes discussed in the press, could be problematic given low synergy, different tool sets, and potential antitrust issues, on top of significant execution risks and consolidation challenges.”
Chinese antitrust officials may protest even if U.S. and European authorities approve a transaction between Intel and TSMC. China thwarted Intel’s 2023 acquisition of an Israeli semiconductor company.
Furthermore, it’s unclear if TSMC would have any use for Intel’s research facilities in Oregon.
Every new generation of Intel’s manufacturing technology is produced at the company’s most sophisticated plants in the world, located near Hillsboro. It’s possible that TSMC would rather continue its manufacturing research in Taiwan than divide it between two locations on different sides of the Pacific.
Analysts believe that Broadcom’s acquisition of Intel’s chip design division would be easier to handle, as long as a separate or related agreement keeps Intel facilities open to produce chips for the merged company.
According to Vivek Arya, another analyst at Bank of America, Broadcom might profit from Intel’s strong brand recognition and its lucrative business of selling microprocessors for PCs and data centers. Although Arya warned that Broadcom already has a high debt load, he noted those are outside of its main market and complement its current businesses.
Rasgon, the Bernstein analyst, noted that Broadcom CEO Hock Tan has demonstrated the capacity to brutally cut expenses while maintaining innovation.
However, if investors find drastic cost reductions attractive, Intel’s Oregon staff will undoubtedly find those reductions concerning. Given that Intel’s future is at stake, that emphasizes the dangers Oregon confronts.
–Mike Rogoway writes on the business and technology in Oregon. You can reach him at 503-294-7699 or [email protected].
