Taiwan Semiconductor's Intel Foundry Acquisition Could Be Negative For ASML, KLA, Synopsys, And Cadence: Analyst

Needham analyst Charles Shi reiterated Taiwan Semiconductor Manufacturing Co TSM with a Buy and a $225 price target.

In conjunction with Shi’s Taiwan Semiconductor note on a pro forma analysis of the contract chipmaker’s potential acquisition of Intel Corp’s INTC Intel Foundry, the analyst noted through the implications for Semiconductor Capital Equipment (Semicap) and Electronic Design Automation (EDA) and concluded that the takeover will inevitably lead to capital efficiency, which is a long-term negative for semicap.

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Also, post-closing, the Taiwanese chipmaker will likely pursue capital expenditure synergies to improve Intel Foundry’s cash flow and maximize equipment reuse, especially in lithography, process control, hybrid bonding, and potential cancellation of specific programs such as high-NA EUV.

Post-closing, Taiwan Semiconductor will likely cancel specific Intel Foundry programs, such as building its own EDA/IP ecosystem, which could reduce IP purchases from EDA companies.

The analyst notes that Taiwan Semiconductor will migrate Intel Products onto the Taiwanese contract chipmaker’s processes starting from 14A node. A majority of the Intel Foundry fabs will become “orphan” fabs, which will eventually be sold by Taiwan Semiconductor, resulting in reduced demand for mature-node semicap equipment.

Overall, Shi noted that Taiwan Semiconductor’s taking over Intel Foundry may be a net negative for the small-cap and EDA industries, at least in the near—to medium-term.

The analyst writes that if the takeover materialized, ASML Holding ASML, KLA Corp KLAC, Synopsys, Inc. SNPS, and Cadence Design Systems, Inc. CDNS would feel more near-term pain than peers.

Shi noted that Intel’s aggressively pushing high-NA EUV program may be canceled or scaled back, given Taiwan Semiconductor’s lack of interest in high-NA and the technical limitations of high-NA EUV in printing large dies essential for AI chips.

This is a direct negative to ASML, which depends more on the pricing uplift of high NA EUV to generate top-line growth as overall litho intensity plateaus.

The analyst noted Taiwan Semiconductor will be unable to backfill Intel Foundry’s old fabs with its volume due to significant process and toolset differences. Instead, Taiwan Semiconductor may reuse Intel Foundry tools when the tool configurations are standardized and not customized.

Shi noted an excellent opportunity for Taiwan Semiconductor to reuse Intel’s existing lithography and process control equipment fleet, as those tools are rarely customized to a specific customer.

This is a direct negative read for ASML and KLA Corp, which shipped a decent volume to Intel during the Intel IDM 2.0 era.

The EDA industry benefited from Intel Foundry over the past two years as Intel ramped up spending on its foundry ecosystem, especially on building an IP ecosystem that allows customers to easily port designs from Taiwan Semiconductor to Intel Foundry.

Intel’s significant investment in creating a baseline IP ecosystem has juiced up Synopsys and Cadence Design Systems’ IP revenue growth.

However, if Taiwan Semiconductor takes over Intel Foundry, Shi noted that ecosystem spending will likely be cut. As such, Shi noted potential downside risks to Synopsys and Cadence Design Systems’ IP revenue growth in 2025 and beyond.

Price Action: TSM stock is down 0.83% at $202.21 at last check Tuesday.

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