J.P.Morgan Global Equity Research analysts Gokul Hariharan, JJ Park, Christopher Danely and Rahul Chadha take a close look at Intel Corporation (NASDAQ:INTC) in light of recent events surrounding its foundry.

Intel

Intel, TSMC foundy battle heats up

We hosted an investor call on Intel Corporation (NASDAQ:INTC) vs. Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) – foundry battle heats up, with views from Chris Danely, Gokul Hariharan and JJ Park on the changing competitive landscape in Foundries. This report contains a rough transcript for the call. Earlier this week, we outlined our view that Intel’s foundry business is having yield issues at 14nm & Altera has re-engaged TSMC for 16nm FF. While Altera re-iterated its commitment to Intel at 14nm, we believe that the repeated delays are an issue that Intel will need to address to regain the confidence of prospective Foundry customers.

14nm delay may cause worry among prospective Intel’s customers

Intel Corporation (NASDAQ:INTC)’s proposition for foundry is “premium pricing” in exchange for tech leadership – this can only work if they can deliver at least a one-year lead on each process node, since the cost of engaging with Intel is quite high given designs are not portable to any other foundry, in our view. We believe 14nm delay (process or foundry) may be a worry for prospective Intel customers, since 14nm was where Intel had a clear edge over Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM), in our view. Intel still has some time to fix these issues, but we think the window of opportunity is shortening.

Scaling gap to continue narrowing

Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM)’s newly announced “16nm FF Plus” is expected to be only 10-15% behind Intel’s 14nm (on area scaling) – so performance gains at Intel are not significant anymore while TSMC may score well on time-to-market. TSMC expects scaling gap to narrow further on 10nm, while timing wise TSMC’s 10nm may only be 3-6 month behind Intel’s 10nm,in our view.

SEC/GF shift focus to 14nm FF, TSMC likely single source for 20nm

With Samsung building little capacity and indications that Global Foundries could now skip 20nm, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) will be the sole source for 20nm, in our view.