Covering Scientific & Technical AI | Sunday, November 24, 2024

Intel Seeks $30B Deal for GlobalFoundries as New CEO Pat Gelsinger’s Changes Continue: Report 

When Intel launched plans in March to spend $20 billion to launch two new fabs to dramatically increase its computer chip production capabilities, it was a big deal, coming just a month after Pat Gelsinger rejoined the company as its new CEO.

Now that plan is perhaps being bolstered by a fresh report that Intel is pursuing a potential $30 billion offer to buy GlobalFoundries and boost its chipmaking even more.

The $30 billion exploratory pursuit of GlobalFoundries was reported July 15 (Thursday) in a story by The Wall Street Journal, which was based on interviews with people who are familiar with the matter. “Any talks don’t appear to include GlobalFoundries executives, as a spokeswoman for the company said it isn’t in discussions with Intel,” the story reported.

In an email reply to EnterpriseAI about the report, an Intel spokesman declined to comment on the story.

Pat Gelsinger, Intel CEO

Growing its foundry business and chipmaking capacity are both high on Intel’s public agenda as the company unveiled recent moves to re-establish its leadership position in semiconductors as part of Gelsinger’s ambitious IDM 2.0 (Integrated Device Manufacturing) strategy to reinvigorate its operations.

The company has been looking at ways of building more chips for other companies as well as its own Intel chips as demand for chips continues soars around the globe. Chip shortages due to disruptions and cutbacks caused by the COVID-19 pandemic continue to rile whole industries, from computers to cars and trucks, consumer goods and more, with expectations that the supply problems could continue through 2023.

A potential deal from Intel for GlobalFoundries is not a certainty, and in lieu of such a deal GlobalFoundries could proceed with a previously planned initial public offering, the Journal reported. Owned by Mubadala Investment Co., which is an investment arm of the Abu Dhabi government, GlobalFoundries is based in the U.S., the story continued. GlobalFoundries was created in 2008 when it was spun off by Intel rival AMD.

Intel’s interest in boosting its chip production is so central to its plans that earlier this week another report said the company could spend another $20 billion to also build two chip fabs in Europe if it can get government subsidies. The July 14 story by Data Centre Dynamics said the company is eyeing countries including Germany, the Netherlands, France and Belgium, with the possibility of spending some $100 billion on chip plants in Europe over the next several decades.

Truly a Surprise Development: Analysts

Several IT analysts interviewed by EnterpriseAI about the potential Intel move for GlobalFoundries agreed that the possibility was not even on anyone’s radar until now.

Analyst Jack Gold

“GlobalFoundries is a relatively minor player compared to the big contract fabs like TSMC and Samsung, but nevertheless it has been making some important chips for companies,” said Jack E. Gold, the president and principal analyst of J. Gold Associates, LLC. “Intel, like all of the chip companies, needs to increase its fab capacity. It takes years to build new manufacturing, so buying an existing fab is much faster way to market.”

But other reasons also could make sense for such a transaction, including that GlobalFoundries “used to be a laggard in the process node race but has made some strides over the past couple of years,” said Gold. “More importantly, it has been working with IBM on some advanced processes that could prove very valuable. So, if Intel buys GlobalFoundries, it also gets to work closely with the advanced semiconductor manufacturing capability of IBM R&D, which has been instrumental in the past in advancing chips that it has been using in its high-end systems.”

In addition, Gold said he thinks that the Mubadala Investment Co. that owns GlobalFoundries has “grown a bit disillusioned [with] their purchase and would like to get a return on their investment after many years of trying to make it a major competitor in the market and not really succeeding. They were toying with an IPO, but if they can sell it outright, they do not need to go through all that effort and expense.”

The reported $30 billion price tag mentioned by the Journal story would be a “bargain,” said Gold, because it would allow Intel to produce chips immediately instead of after three or more years of building a new fab facility.

Glenn O'Donnell, analyst

Glenn O’Donnell, an analyst with Forrester Research, said that though the report is just speculative today, Intel has suffered significant setbacks in manufacturing under its prior leadership.

“It needs to get its fab mojo back and Gelsinger is committed to doing that,” said O’Donnell. “Buying GlobalFoundries would give it the capacity it needs - quickly. In that sense, it is a good move. It is hard to comprehend that it is worth $30 billion, but the more I think about it, the more I think it is reasonable.”

And under Gelsinger, such a deal is certainly doable, said O’Donnell.

“If Pat Gelsinger wants GlobalFoundries, he will get it,” he said. “As the leader brought back home to save Intel, he has license to make bold moves. Even a $30 billion price tag is likely acceptable to the board.”

At the same time, such a purchase would probably also “give Intel freedom to pursue IBM’s 2nm process, as that was likely to end up in production under GlobalFoundries before any other licensees,” said O’Donnell. “Intel is just getting its 7nm capacity going but TSMC is already there and tinkering with 5nm and even 4nm. Intel needs to leapfrog TSMC here.”

Nathan Brookwood, analyst

Nathan Brookwood, principal analyst with Insight64, said the potential deal could be particularly helpful for Intel. The company’s challenge is that while it is a chipmaking powerhouse, it only has that title when it concerns chips with the Intel logo on them.

GlobalFoundries, on the other hand, is a contract chipmaker which makes a broad range of specialized chips for a wide range of companies, giving it broader experience and intellectual property than Intel, said Brookwood.

“Intel has the IP that they needed to make Intel microprocessors, but they do not have the IP if say Arm customers come to them,” said Brookwood. “It would be great for them to buy a company like this to have this capability to be able to build things for others. That is one of the big differences between a company like Intel that has been building its own products and a company like TSMC that builds everybody else's products.”

Under Gelsinger, Intel is taking some new directions and that is a good thing, said Brookwood. “Yeah, Intel definitely had some problems” before Gelsinger’s return, he said. “I do not know if his solutions are the right solutions, but he is not sitting around saying, well, let us see how this works out. He is making changes and I think it is going to take a while.”

Karl Freund, analyst

Another analyst, Karl Freund, founder and principal analyst of Cambrian AI Research, told EnterpriseAI that a GlobalFoundries acquisition by Intel “would certainly vault Intel into becoming a serious provider of fab services.”

Freund said the move, however, might not help Intel solve its own manufacturing problems because its needs lie mostly in advanced nodes, which is an area that GlobalFoundries exited a few years ago.

“Perhaps that would be a decision that Gelsinger would effectively reverse, especially if the Intel/IBM partnership [which is a part of Intel’s IDM 2.0 strategy] bears fruit,” said Freund.

Camberley Bates, analyst

Camberley Bates, an analyst with Evaluator Group, said that with all the dramatic changes constantly happening in the chip marketplace that this would be a fascinating move it if comes to fruition.

“Competitively, the silicon market is changing and far more competitive than we have seen in the past 15 year probably,” said Bates. “New tech – GPU, DPU, etc., and the needs of the digital world are requiring a new look at how we process, compute and manage data. Add in the public clouds and their entrance into the chip design and we have a highly dynamic market.”

Lots of Activity in the Chip Marketplace

The chip industry has been no stranger to big announcements and blockbuster deals in recent months.

Earlier in July, AMD’s proposed $35 billion acquisition of FPGA maker Xilinx received needed approvals from the European Commission (EC) and from the UK government, placing the deal into the hands of Chinese regulators for final action. The acquisition, which was announced in October of 2020, already received needed reviews and approvals from a wide swath of other governments around the world. AMD’s pursuit of Xilinx started with rumors in the summer of 2020 and finally coalesced in October when the chipmaker announced its $35 billion all-stock offer for the FPGA maker.

The acquisition is seen as helping AMD keep pace during a time of consolidation in the semiconductor industry. GPU rival and market leader Nvidia acquired Mellanox for its interconnects and has a pending $40 billion proposal to buy Arm. AMD has been on a steady upward trajectory since its return to the server market with its Epyc microprocessor line in 2017.

Gelsinger on a Mission of Change

Four months after taking over the reins of Intel Corp., Gelsinger announced a string of executive leadership changes in June as he works to shake things up inside a company that leads its marketplace but could use a boost in energy.

Gelsinger succeeded Bob Swan at Intel when he returned in February, tasked with the job of reinvigorating the monolithic company and breathing new energy and life into its organization, products and leadership. Gelsinger’s hiring came after activist hedge fund Third Point had urged Intel’s board to explore “strategic alternatives” after manufacturing setbacks plagued the company and resulted in a two-to-three year lag in process leadership.

 

AIwire