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The semiconductor industry is undergoing a period of dramatic upheaval, marked by the potential breakup of Intel and sale to Broadcom and/or TSMC, the rise of Arm as a chip manufacturer, and increasing geopolitical tensions. This seismic shift will have far-reaching implications for the semiconductor supply chain, the balance of power within the industry, and the future of technological innovation.

Intel’s decline and potential acquisition

Intel, a pioneer and once leader in the semiconductor market, has faced significant challenges in recent years. Manufacturing missteps and rising competition have led to takeover interest from Taiwan Semiconductor Manufacturing Co (TSMC) and Broadcom. According to sources familiar with the matter, Broadcom is closely examining Intel’s chip design and marketing business and has considered making a bid contingent on finding a partner for Intel’s manufacturing business. TSMC is also considering taking control of Intel’s factories, potentially as part of an investor consortium.

Frank Yeary, Intel’s interim executive chairman, has reportedly been leading discussions with potential suitors, prioritizing value for Intel’s shareholders. The possible acquisition of Intel by TSMC and/or Broadcom would align with the industry’s shift toward specialization in manufacturing or designing chips.

Last week, investors were excited about the dual-deal possibilities because Intel shares surged 16% on Tuesday. While the stock came back down later in the week, it still notched a weekly boost of 5.3%.

During an interview with EE Times, Mateo Valero, director of the Barcelona Supercomputing Center (BSC), noted that Intel traditionally designed and manufactured its own chips. Now, only Samsung and Intel design chips and have their own semiconductor factories. The rest are “fabless” and rely on foundries with better technology, such as TSMC. He also points out that Global Foundries (formerly AMD) has fallen behind, focusing on larger transistors for the automotive industry. Valero says the key is “who owns the high-tech foundries.”

Supply chain vulnerabilities and geopolitical considerations

The semiconductor supply chain’s complexity and international integration have become increasingly apparent. Chris Miller, author of “Chip War: The Fight for the World’s Most Critical Technology,” during a conversation with Arm’s CEO Rene Haas, observed that the U.S. was once vertically integrated in semiconductors, but as technology became more complex, it became impossible for one company to specialize in everything. 

Miller argued that having an internationally integrated supply chain allows for the distribution of capital costs and access to global talent. “It’s easy to, I think, have a simple view that we wish it hadn’t become so globalized because it becomes harder to control. And I understand that impulse, but I think you’d also have lost a lot of technological progress had it just been stuck within national boundaries,” said Miller.

However, globalization has also created vulnerabilities. The U.S. government has sought to promote domestic semiconductor manufacturing and restrict technology transfer to China. TSMC’s potential acquisition of Intel raises questions about the U.S. government’s approach to the semiconductor industry. 

Any deal involving TSMC taking control of Intel’s factories would require approval from the U.S. government. The CHIPS Act of 2022 established a $53 billion grant program for domestic chip-making, with Intel as a significant recipient.

Valero highlighted the strategic importance of owning high-tech foundries. He suggests that the U.S. government’s primary interest in Taiwan is TSMC. “The only interest that the United States has in Taiwan is TSMC,” Valero argued.

Arm’s ambition and market disruption

Arm, known for licensing its chip designs, plans to launch its own chip. This move represents a radical shift in its business model and could disrupt the semiconductor industry. It looks like Arm’s CEO Rene Haas and Softbank Chairman Masayoshi Son don’t believe licensing revenues are enough.

The upcoming chip is expected to be a central processing unit (CPU) for servers in large data centers, with production outsourced to a manufacturer such as TSMC. Arm’s investors are optimistic, likely anticipating their chips will increase its market share in data center computing.

Arm’s decision to make its own chips has sparked debate. Valero questions whether this move will be beneficial or detrimental. He argued that this new direction could create conflicts with existing customers who rely on Arm’s designs.

Amazon, known for using Arm’s IP in its line of Graviton processors, announced in September 2024 that it will work with Intel to produce an AI fabric chip for AWS on Intel 18A, the company’s most advanced process node.

Europe’s opportunity and ambitions

Europe is striving to strengthen its position in the semiconductor industry. Valero emphasized that Europe neither designs nor manufactures chips and underscores the importance of having state-of-the-art factories. He also points to Macron’s announcement of a French plan of 109 billion euros at the AI summit in Paris and Von der Leyen’s announcement of a European plan.

Valero advocates for Barcelona to become the city of chip design in Europe. According to Valero, all the chips from Intel, Arm, and Nvidia will be challenged because of the rising RISC-V architecture, which is open source. Valero argues that most chips will follow this philosophy within ten years, opening a unique opportunity in Barcelona to create 10,000 jobs designing chips.

To achieve this, he calls for public protection and support for companies. He hopes that Europe will protect its companies and foster the development of better chips. “If the market is protected, I do not doubt that in ten years in Europe, we can have better chips than any other,” said Valero.

Competition and innovation

The potential split of Intel and Arm’s entry into chip manufacturing would intensify competition within the semiconductor industry. If Broadcom acquires Intel’s chip-design business, it will become a major player in the CPU market, potentially leading to increased innovation.

Arm’s entry into chip manufacturing could also disrupt the CPU market. Its power-efficient designs have made its CPUs an attractive alternative to Intel’s chips. However, Arm faces the challenge of competing against its own customers.

The semiconductor industry is undergoing a period of significant change. The potential acquisition of Intel by TSMC and/or Broadcom and Arm’s entry into chip manufacturing would reshape the competitive landscape, with far-reaching implications for the semiconductor supply chain, geopolitical dynamics, and the industry’s future.

Adding to these shifts, China is only second to the U.S. in high-performance and low-power artificial intelligence (AI) semiconductors. China catching up to global leaders in semiconductor technology despite restrictions is an additional concern.