Feb 14 (Reuters) -

Taiwan's TSMC, the world's biggest chipmaker, is

considering taking a controlling stake in Intel's ( INTC )

factories at the request of U.S. President Donald Trump's

officials, Bloomberg News reported on Friday.

Trump's team raised the idea of a deal between the two firms

in recent meetings with officials from TSMC, and they were

receptive, Bloomberg reported, citing a person familiar with the

matter.

The talks are in very early stages, and the exact structure

of a potential partnership has not been established. But the

expected result would have TSMC fully operating Intel's ( INTC ) U.S.

semiconductor factories, Bloomberg reported.

Such a deal could throw a financial lifeline to Intel ( INTC ), which

has struggled to restore its lost chipmaking glory as it failed

to capitalize on an AI boom and poured billions of dollars into

becoming a contract chip manufacturer - a transformation that is

yet to materialize.

Intel ( INTC ) shares closed down 2.2% on Friday, while TSMC's

U.S.-listed shares closed up about 1%.

"Combining TSMC's expertise and engineers with Intel's ( INTC )

infrastructure could help kick-start President Trump's dream of

having the U.S. become the center of the chip universe," said

Brian Jacobsen, chief economist at Annex Wealth Management.

But such a deal would need deep concessions on both sides.

Should TSMC accept an arrangement to run Intel's ( INTC )

factories, it would have to make significant changes to the U.S.

chipmaker's operations because each chip manufacturer has

distinct methods and techniques for operating factories.

To operate Intel's ( INTC ) fabs, TSMC would also likely need to

reveal some of its secret techniques and processes to Intel ( INTC )

employees.

On its part, Intel ( INTC ) would have to concede the fact that

its manufacturing operations would become a totally different

entity, likely with a completely different work culture.

As well, TSMC fully operating Intel's ( INTC ) factories, known

as fabs, also raises questions about Intel's ( INTC ) key strategy of

manufacturing the chips it has designed. Most chipmakers are

"fabless" - outsourcing to the likes of TSMC, which offers

considerable cost savings.

"If Intel ( INTC ) moves down this path, you focus on being a

semiconductor design company. So you end up looking more like a

Broadcom ( AVGO ) or a Marvell ( MRVL ) or an AMD," Wedbush

Securities analyst Matthew Bryson said.

TSMC and Intel ( INTC ) declined to comment. The White House did

not immediately respond to a Reuters request for comment.

TARIFF EXEMPTIONS?

Intel ( INTC ), which ceded its manufacturing technology edge to

TSMC, is among a few chipmakers that both design and manufacture

semiconductors. TSMC is now the world's largest contract

chipmaker which boasts a market valuation about eight times

larger than that of Intel ( INTC ).

The Taiwanese contract chipmaker, whose customers

include AI chip leader Nvidia ( NVDA ) and AMD, which

has consistently eaten into Intel's ( INTC ) share of the personal

computer chip and server central processor market.

"Ironically, enough, TSMC might look for some tariff

exemptions in order to make this happen and allow for efficient

and effective flow of equipment and materials," said Michael

Ashley Schulman, chief investment officer at Running Point

Capital.

Trump tasked his economics team on Thursday to come up

with plans for reciprocal tariffs on every country taxing U.S.

imports, ramping up prospects for a global trade war.

Former Intel ( INTC ) CEO Pat Gelsinger, who was ousted last

year, set sky-high expectations for Intel's ( INTC ) manufacturing and AI

capabilities among major clients but fell short, losing or

canceling contracts, Reuters had previously reported.

Intel's ( INTC ) shares lost about 60% of their value last year as

the capital-intensive bid to bolster manufacturing - a strategy

championed by Gelsinger - strained the company's cash flow and

ultimately led to it cutting about 15% of its workforce.

The success of Intel's ( INTC ) 18A chipmaking technology, slated for

this year, is key to the company's manufacturing ambitions

It is unclear whether Intel ( INTC ) is open to a transaction,

according to the report.

The arrangement may involve having major American chip

designers take equity stakes, along with support from the U.S.

government, Bloomberg reported, adding that it meant the venture

would not solely be owned by a foreign company.

Intel ( INTC ) is among the largest beneficiaries of the United

States' push to onshore critical chip manufacturing.

Under the previous administration, the U.S. Commerce

Department in November said it was finalizing a $7.86 billion

government subsidy for Intel ( INTC ).

(Reporting by Arsheeya Bajwa, Akash Sriram and Ananya Mariam

Rajesh in Bengaluru, Max A. Cherney in San Francisco and Juby

Babu in Mexico City; Editing by Anil D'Silva)