Speculation surfaced last week that Intel is looking to buy GlobalFoundries for $30 billion, pursuing yet another avenue in its attempts to remain competitive in an increasingly chaotic semiconductor market.
Since the start of the year, Intel has pledged to build two chip manufacturing plants over the next two years to the tune of $20 billion, and will invest another $3.5 billion to upgrade its existing New Mexico plant. Intel is also lobbying a number of European governments to raise $10 billion to build a chip facility on their continent.
Intel's chief competitors have hardly been sitting on their hands. Nvidia is trying to acquire Arm Holdings from Softbank Group, a deal that faces regulatory hurdles. A surging AMD purchased Xilinx for $35 billion to bolster its position in the high-performance computing market.
In a development this week that could sweeten the deal for Intel, GlobalFoundries plans to expand its most advanced chip facility in Malta, N.Y., over the next couple of years. The company made the announcement as it met with government leaders looking for ways to solve the semiconductor supply chain issues in the U.S.
"Strategically this deal makes sense for Intel, who wants to get into the foundry business," said Patrick Moorhead, president and principal analyst with Moor Insights & Strategy. "GlobalFoundries is very differentiated in its focus with 5G, IoT and automotive -- areas Intel doesn't necessarily optimize for."
Intel fell behind Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung in process geometry, but the company's new CEO, Pat Gelsinger, said Intel would strive to regain the leadership position, noted Jim Handy, general director and semiconductor analyst at Objective Analysis.
"You need to have a certain volume of wafers to be able to justify having a fab that has the most leading-edge process, and Intel's wafer volume is lower than that needs to be," Handy said. "The question for management was: How do we get that wafer volume higher? The only real way to do it was by becoming a foundry themselves."
Jim HandyGeneral director and semiconductor analyst, Objective Analysis
GlobalFoundries plans to invest $1 billion and add another 150,000 wafers per year within the existing Malta lab to address the ongoing global chip shortage. The company plans to fund the new facility through private-public partnerships that will see a combination of customers and federal and state governments making investments.
Not all of Intel's investments and acquisitions have to do with its future goal of producing 2- and 3-nanometer chips, but also to partner with other chip manufacturers to produce older chips that work with a variety of different controller-based components essential in making PCs work.
"Intel isn't just concerned with next-generation chips but also things like 28- nanometer chips used for USB controller interfaces -- something every PC manufacturer needs," said Dan Newman, founding partner and principal analyst of Futurum Research and CEO of Broadsuite Media Group. "This [deal] enables them to compete more diligently against TSCM, which does leading-edge chip manufacturing and less cutting-edge chips."
While top-tier chipmakers such as TSMC and Samsung have as a goal to ease the chip shortage, Handy said Intel's potential acquisition of GlobalFoundries would have no impact on reducing the chip shortage.
"Everybody who is involved in the chip shortage is working as hard as they can to solve that problem. This particular deal is not going to make that happen any faster," Handy said. "It's going to happen as soon as the tools can be made available and as soon as there are enough raw wafers that they can process, then it will get it squared away."
Intel's hope of becoming a process leader depends on the economics of being able to get enough wafers through their facility, Handy added. To do that, the company will have to resort to making not just Intel products, but the products of others.
GlobalFoundries has given off signals that it has fallen behind from a process standpoint and "could be in better health," Handy said. However, the semiconductor manufacturer would gain Intel's most advanced processes should the acquisition materialize.
"Once a foundry falls several process nodes behind other foundries, it relegates itself to being a trailing-edge business. And that's not a very profitable place to be," Handy said. "This would be an opportunity for GlobalFoundries to regain footing with Samsung and TSMC by Intel infusing more capital than GlobalFoundries has available to it."
With the government of Abu Dhabi owning a stake in GlobalFoundries, the deal with Intel might make the Biden administration a bit leery of investing some of the money it promised to pump into a variety of semiconductor companies to address the chip shortage. The recently-passed U.S. Innovation and Competition Act of 2021 provides $52 billion to expand the domestic semiconductor industry and supercharge the GlobalFoundries expansion. But the U.S. government may not look favorably on foreign-owned companies coming in to resolve chip shortages in the U.S. market, Newman said.
"[GlobalFoundries] recently also expressed an interest in issuing an IPO open to U.S. investors, which also might make the U.S. government somewhat reluctant," Newman added.
Intel declined to comment on published reports about the GlobalFoundries deal.
GlobalFoundries did not respond to requests for comment about the reported deal. GlobalFoundries CEO Tom Caulfield, in an interview with CNBC, said there is "no truth" to the story that ran in The Wall St. Journal last week and that no discussions of such a deal have been held.