Intel sells IMS stake to competitor to make it more competitive

Intel this week announced that it is selling 10% of its IMS Nanofabrication subsidiary, which makes multi-beam mask writing tools required for the extreme ultraviolet lithography (EUV) manufacturing process, to TSMC, the Taiwan giant that Intel has in its competitive sights as it continues to grow its own foundry business.

So, why would Intel sell its biggest foundry competitor a piece of a very important component operation that it otherwise could keep to itself?

One reason is because the IMS operation, based in Vienna, Austria, is valuable enough that TSMC and others are willing to invest in it. The 10% TSMC stake values IMS Nanofabrication at $4.3 billion, and comes not long after Bain Capital acquired a 20% piece of IMS, so by selling away large chunks of IMS–but still maintaining majority ownership–Intel has cashed in to the tune of roughly $1.3 billion that it could re-invest in any number of ways to boost its own business aspirations. While IMS is important to Intel’s own IDM 2.0 strategy, it has more than a billion reasons to open the door to other investors, even competitors.

A second reason has to do with making IMS and, more generally, Intel’s own foundry services, more appealing from a competitive perspective for companies that want to work with these units. TSMC has valuable technology tools and advice to contribute to IMS, according to Jack Gold, president and principal analyst at J. Gold Associates, and both that and Intel’s willingness to divest some of its ownership will help the cause

“Having the two leading edge manufacturers inputting into the tools and technology will assure that #IMS maintains the most advanced capabilities needed by the entire industry, and not solely driven by Intel's needs,” Gold wrote on LinkedIn. 

Matt Poirier, senior vice president of Corporate Development at Intel, admitted as much in announcing TSMC’s investment, stating, “This investment demonstrates the deep industry collaboration IMS is pioneering to advance critical lithography technology for leading-edge nodes, which will benefit the entire semiconductor manufacturing ecosystem. With enhanced independence, IMS will be well positioned to address the significant growth opportunity for multi-beam mask writing tools over the next decade and beyond.”

The seemingly counterintuitive deal also reflects the new reality of the semiconductors industry, which is seeing companies in both the manufacturing and chip design ends of the market increasingly partner in some business areas while continuing to compete intensely against one another in other areas. While one prong of Intel’s IDM 2.0 strategy is to build up its own foundry services, another is for the company to increase its use of external foundries for some of its chips.

Gold stated that TSMC’s investment in IMS “may also promote some enhanced interchangeability between Intel and TSMC fabs for production capabilities, especially as both companies (and customers) rely on each other's #foundries. It's close to an "open source" equivalent for mask making.... I wouldn't be surprised to see other semi companies do a similar deal with Intel (within US Government restrictions)...”