Semiconductor manufacturing tech is powering the AI revolution and other big trends. The industry could be poised for a shake-up.
Intel (INTC 2.34%) is a leading design player in the market for PCs and central processing units (CPU) for PCs and servers. The company also operates a chip foundry unit that manufactures its chip designs and takes orders from third-party customers.
While Intel has invested heavily in building its foundry business into a major provider of fabrication services for third parties, growth for the segment has proceeded at a much slower pace than management forecast. As a result, the Intel Foundry segment has continued to be a massive money loser for the company.
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On the other hand, investors have been betting big that the company’s new manufacturing processes could wind up attracting surging demand — and the dynamic has helped push the semiconductor specialist’s share price up more than 150% over the last year. Depending on geopolitical developments, 2027 could be a year that sees demand for Intel’s fabrication services kick into overdrive.
Intel could play a crucial role in diversifying global chip production
Taiwan Semiconductor Manufacturing (TSM +0.25%), or TSMC, as it’s often called, dominates the contract chip manufacturing space. When it comes to the fabrication of advanced chips used to power artificial intelligence (AI) and next-gen communication technologies, the company’s dominance is even more pronounced. By some estimates, TSMC accounts for more than 90% of advanced chip fabrication.
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If technological advantages, product reliability, and customer relationships were the only factors poised to shape the chip fabrication space, Intel would likely face a lengthy timeline for winning major market share away from TSMC even in optimistic scenarios. In reality, other factors have increased the likelihood of Intel’s fabrication business succeeding and helped the company attract investments and support from the U.S. and its allies. The possibility that China could invade Taiwan before the decade is out is chief among these factors.
China has reportedly set a 2027 target date for the operational capacity to bring Taiwan back under its control. If China were to seize or blockade Taiwan, it could seriously disrupt TSMC’s ability to operate and ship chips to its international customers. Given the importance of semiconductors to the global economy and to national security interests, the reliance on one manufacturer operating its most advanced manufacturing facilities in contested territory presents massive risk factors along multiple lines.
To be clear, moves by China to exert greater control over Taiwan have the potential to be hugely destabilizing on the world stage — and this would likely have a disastrous impact on valuations across financial markets. I think Intel could perform relatively well in such a scenario, and the importance of diversifying semiconductor supply chains seems likely to continue creating favorable dynamics for its foundry business.
Keith Noonan has positions in Intel. The Motley Fool has positions in and recommends Intel and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
