Intel Casts Doubts on Next-Gen Chip Manufacturing. What It Means for TSMC and ASML Stock.

Intel said it might discontinue investment in its 14A chip manufacturing process if it can’t win a major customer. (Intel Corporation)

Intel has cast doubt on the future of its chip-manufacturing operations. It’s more good news for Taiwan Semiconductor Manufacturing, but could be a problem for chipmaking machinery supplier ASML Holding.

Intel has lost out in advanced chip manufacturing for external clients to Taiwan Semi, or TSMC, in recent years. It hoped to win back some market share with the coming launch of its 18A process, which is reportedly being tested by Nvidia and Broadcom.

However, Intel appeared to play down hopes of winning any major external customers: Executives said on the company’s earnings call Thursday that 18A will primarily be used for internal products, at least initially.

“There’ll be more opportunities for us to attract external customers after we do so much improvement in terms of performance and yield on our own products,” Intel CFO David Zinsner told analysts.

If that wasn’t worrying enough, Intel also said in its filing that it might “pause or discontinue” its next-generation 14A process if it can’t win a significant customer. New CEO Lip-Bu Tan—who was appointed in March—appeared to implicitly criticize the chip manufacturing strategy of his predecessor Pat Gelsinger as he said, “I do not subscribe to the belief that if you build it, they will come.”

“The real question coming out of the call seems to be around the Foundry strategy as Intel confirmed that external volumes for the 18A node will be low and 14A investments will be made very carefully. These are not comments that are made by a Foundry with customer visibility,” wrote Melius Research analyst Ben Reitzes in a research note.

Intel shares slid 8.3% in early trading Friday.

Intel’s woes will be music to the ears of executives at TSMC, which is enjoying booming revenue from artificial-intelligence chips, as the key supplier to Nvidia. The Taiwanese company expects revenue from AI-related chips to double in 2025 and grow at a mid-40% annual rate for the next five years. If Intel is out of the picture, its dominance will only grow.

The major hope for Intel in the short term is that the Trump administration’s planned tariffs on semiconductors make its U.S.-made chips more competitive on cost with TSMC’s. However, TSMC has looked to stave off such levies by pledging a total of $165 billion in U.S. investment, including building three new chip plants. Mass chip production at TSMC’s plant in Arizona began in the fourth quarter of 2024.

What’s a boon for TSMC, however, could be a blow for Dutch chipmaking equipment supplier ASML. While ASML has a virtual monopoly on the lithography machines that are crucial for making advanced processors, it has become increasingly dependent on TSMC’s purchases of its newest machines, as its other main customers—Intel and South Korea’s Samsung Electronics —struggle in their own chip businesses.

TSMC has been reluctant to commit to buying ASML’s latest generation of extreme ultraviolet (EUV) lithography machines, which can cost around $400 million each, suggesting that it can continue to use older equipment instead.

Intel dropping out of the chip-manufacturing race would not only remove a major customer for ASML, but also reduce the competitive pressure on TSMC to keep investing in new equipment.

TSMC’s American depositary receipts were up 0.1%, while ASML’s ADRs were down 2% in morning trading.

Write to Adam Clark at adam.clark@barrons.com