BREAKINGVIEWS-For TSMC, Trump can make an Intel deal appeal

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Robyn Mak

HONG KONG, Feb 17 (Reuters Breakingviews) - Donald Trump may make the illogical logical. Taiwan Semiconductor Manufacturing 2330.TW, the world's largest contract chipmaker, is considering taking a stake in Intel's INTC.O factories at the behest of the U.S. president's administration, Bloomberg reported on Friday, citing a source. A similar idea was ruled out by TSMC's boss C.C. Wei in October but with Washington concerned about the fate of the California-based company and threatening tariffs on foreign rivals, it may be a small price to pay for the $840 billion Asian giant to protect its most important market.

Any potential tie-up between the two chipmakers will be messy. Intel designs and sells its own processors as well as manufactures for other companies, making it both a customer and competitor for TSMC. But the U.S. firm has fallen behind rivals in both businesses. Despite receiving billions of dollars in government support and financing from asset managers such as Brookfield BAM.TO, Intel's future as a standalone company, let alone as a leading-edge chipmaker, is uncertain.

One scenario is for Intel to split into two. Broadcom AVGO.O has been eyeing a deal with the company's chip design and marketing unit while TSMC has "studied" controlling some or all of Intel's chip plants, the Wall Street Journal reported over the weekend, citing sources. Alternatively, TSMC could take a 20% stake in Intel's contract manufacturing business, as part of a consortium including U.S. peers like Qualcomm QCOM.O, local media in Taiwan say. Such an arrangement would ease any concerns over handing control to a foreign entity.

Regardless of the structure, a transaction would represent a reversal from TSMC's earlier stance. Combining foundries is notoriously difficult and costly. Moreover, if TSMC takes over Intel's foundry business, which is forecast to generate an operating loss of $9 billion this year, per Visible Alpha, the company will probably have to share valuable expertise and know-how with a future competitor.

A large acquisition was not part of the Taiwanese group's plan A to ramp up manufacturing in the United States, where companies including Apple AAPL.O and Qualcomm made up 70% of its sales last year. TSMC is currently investing over $65 billion to develop three leading-edge factories in Arizona. Progress looks promising: One plant is in production, while construction of the other two are ahead of schedule.

Trump changes the calculus, though. He says Taiwan "stole" America's chipmaking industry. Last month, he threatened tariffs of up to 100% on overseas semiconductors, spotlighting the $16 billion worth of chip imports from Taiwan last year. He also criticises his predecessor's CHIPS Act, through which the Taiwanese group was awarded $6.6 billion in funding, plus $5 billion in loans as well as investment tax credits. Analysts at JPMorgan say an extension of this support is "critical" for TSMC's investments - these credits are due to expire in 2026 and equal to 25% of capital expenditure for the Arizona factories. For Wei, a deal with Intel may be appealing after all.

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CONTEXT NEWS

Taiwan Semiconductor Manufacturing (TSMC) is considering taking a controlling stake in Intel's factories at the request of U.S. officials, Bloomberg reported on February 14, citing a person familiar with the matter. Major American chip designers may also take equity stakes, along with support from the United States government, the report added.

In response to the report, a White House official told Reuters that President Donald Trump's administration might not support Intel's U.S. chip factories being operated by a foreign entity. Local media in Taiwan reported TSMC may take a minority stake in Intel's foundry, or contract chipmaking, business.

Separately, Taiwan President Lai Ching-te pledged on February 14 to talk with the United States about President Trump's concerns over the chip industry and to increase U.S. investment and buy more from the country, while also spending more on defence.