After spending $50 billion, will Intel finally get the key to victory?

Latest update time：2021-07-17

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Source: The content is compiled by Semiconductor Industry Watch (ID: icbank) from the " Wall Street Journal ", thank you.

Less than six months into the job, Intel Corp. Chief Executive Officer Pat Gelsinger’s formula for reviving the chipmaker’s fortunes is emerging: Move fast and bring a big checkbook.

When Gelsinger took over as Intel CEO from Bob Swan in February, the chip giant was suffering from years of process delays, and a major focus for analysts and investors was whether the company would abandon chip production and focus on design. That approach has paid off big for rivals Nvidia and AMD, giving them the ability to eat into Intel's market share.

Mr. Gelsinger’s answer was effectively an emphatic “no.” He pledged that Intel would not only make its own semiconductors but also become a so-called foundry, making chips for others — a financial commitment of more than $50 billion if exploratory talks to buy chipmaking specialist GlobalFoundries go through. The Wall Street Journal reported Thursday that Intel is considering a takeover of GlobalFoundries that would be valued at about $30 billion.

If it goes through, it would be Intel's largest acquisition ever and nearly twice as big as its largest deal to date, which was Intel's purchase of microprocessor maker Altera Corp. in 2015 for about $16.7 billion.

Just over a month after Gelsinger assumed Intel's top job, he pledged that Intel would invest $20 billion in chip factories in Arizona. Less than two months later, he added a $3.5 billion expansion in New Mexico. Intel's CEO has said more financial commitments are in the works both in the U.S. and abroad.

Since joining, Mr. Gelsinger has vowed that Intel’s best days are ahead. But he has also stressed that the company needs to restore its reputation for reliable performance and move quickly to bring back the engineering talent to deliver on that promise.

At times, Mr. Gelsinger is candid about past missteps. Intel has tried before to become a third-party chipmaker, with limited success. “Our initial efforts were a little weak,” he said, adding, “We didn’t really put ourselves out there.”

Matt Bryson, an analyst at Wedbush Securities, said that acquiring GlobalFoundries would give Intel a knack for success. "Because in the past, one of the concerns about Intel was that they didn't really know how to act as a foundry," he said. "GlobalFoundries would give them a broader, more mature set of capabilities."

Intel shares were up 1.51% in early trading Friday.

A global chip shortage has thrust semiconductor production, which was previously almost obscure, into the spotlight. Demand for laptops has soared, and new ways of working have increased demand for cloud computing services and the data centers that run on them. A surge in demand for chips that are going into new 5G phones is adding to the squeeze on manufacturing capacity, chip companies say. Prices of some electronics are rising as automakers have to idle factories because of a lack of chips.

The shortage has become the talk of Washington, D.C., and other global capitals. President Biden has pledged to spend about $50 billion to boost domestic chip manufacturing. Europe has expressed a similar commitment.

Intel is betting the chip boom will continue.

Mr. Gelsinger has said the foundry business of making chips for others should be a $100 billion market by 2025, and he has courted rivals including Qualcomm Inc and Amazon.com Inc to use the business.

Intel is racing to grow and protect that business.

Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, said in April it would invest $100 billion over the next three years to boost production capacity to cope with surging demand. Samsung Electronics Co. plans to spend about $116 billion by 2030 to diversify and boost its semiconductor output, and it is considering investing $17 billion in a new chipmaking plant in the United States.

Counterpoint Research said TSMC accounted for about 59% of the global third-party chip manufacturing market last year, while Samsung accounted for 14%.

While Intel is playing catch-up, Mr. Gelsinger is turning to TSMC and Samsung to help make components of its most cutting-edge chips that it can’t produce in-house.

Stacy Rasgon, an analyst at Sanford Bernstein & Co., doubts that the GlobalFoundries acquisition will help Intel's turnaround. "It's a huge amount of money for a fringe player in the industry," he said, calling such a deal "a distraction for Intel."

Strengthening Intel's chip-making division is only part of Mr. Gelsinger's plan. Another is to ensure that the company continues to design cutting-edge chips to wow its customers. "We have a lot of work to do," Mr. Gelsinger said earlier this year.

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