Intel CEO: The chip industry needs more mergers and acquisitions

According to the Financial Times, Intel’s chief executive said more consolidation is needed in chip manufacturing. And just a few days ago, it was reported that the US chipmaker was in talks to buy GlobalFoundries for $30 billion.

“We think smaller players won’t be able to keep up,” Pat Gelsinger said. On a conference call with analysts to discuss Intel’s latest earnings, he added, “I’m referring to foundries that don’t have leading capabilities” — a term often used to refer to companies that don’t make computer chips with the smallest feature sizes — – It will be difficult to compete.

GlobalFoundries, owned by Abu Dhabi’s sovereign wealth fund Mubadala, abandoned its leading-edge manufacturing process three years ago. At the time it scrapped plans to make 7-nanometer chips — and Intel has been working on the same process technology.

Gelsinger’s comments are the clearest sign yet that the U.S. chipmaker hopes to use the deal to boost its manufacturing base. Intel said it was in discussions with 100 potential customers about its new foundry business, which it announced in March, justifying the rapid expansion of its production facilities.

“We wouldn’t say M&A is important, but we wouldn’t rule it out,” Intel’s chief executive told Wall Street. Mubadala did not comment on the talks with Intel reported by the Wall Street Journal, while GlobalFoundries said the two sides were not in discussions.

At the same time, Intel said it expects the peak of the supply chain crunch that has engulfed the electronics world this summer, and expects it could take two years to fully relieve the industry-wide pressure and return customer supplies to normal.

The company said supply pressures — particularly a lack of silicon wafers used to make Intel chips — would hinder PC semiconductor production this quarter, hurting sales. Intel, as it tries to finally ramp up production of its 7nm chips, said it faces higher costs later this year, a caution and higher costs that sent shares down 2% in after-hours trading.

Some industry leaders predict a quicker rebound in chip supply, arguing that the supply shortage is artificially exacerbated by customers overordering in an attempt to make up the shortfall. But Gelsinger has warned for months that the problems will hold back electronics makers for longer than many expected, reiterating on Thursday that “it will take a year or two for the industry to catch up with demand.”

The warning came as Intel reported surprising second-quarter earnings, thanks to a continued rebound in PC sales that began with the Covid-19 lockdown. The company’s second-quarter revenue of $19.6 billion beat Wall Street expectations by nearly $2 billion — although sales were still slightly lower than a year ago, when a surge in digital demand caused by the pandemic led to a surge in chip sales for cloud companies .

Intel raised its previous full-year revenue forecast by $1 billion to $73.5 billion — although after a strong $2 billion performance last quarter, that still means a $1 billion shortfall for the rest of the year.

Intel’s foundry ambitions may slow due to lack of deals

For Intel CEO Pat Gelsinger, in its high-stakes bid, an obvious strategy to make the company a player making chips for others would be a transformational acquisition, analysts said.

But there’s only one problem — the lack of acquisition targets Intel can buy.

The conundrum came into focus last week when the Wall Street Journal reported that Intel was considering a $30 billion acquisition of chipmaker GlobalFoundries. Intel reported earnings on Thursday, and despite a booming PC market, analysts expect sales to fall 9.8% to $17.8 billion as Intel loses share to rivals such as Advanced Micro Devices.

Dan Hutcheson, CEO of VLSI Research, said buying a foundry would provide Intel with “real customer support staff, not techies who are primarily told what to do by management.” “It took Samsung 10 years to build the foundry business.”

But analysts questioned GlobalFoundries’ pricing, and a conflict could arise because some of the foundry’s major customers, such as AMD, compete with Intel.

GlobalFoundries Chief Executive Tom Caulfield told Reuters on Monday that he planned to take the chipmaker public in 2022 as previously planned, dismissing rumors of a deal with Intel. There are no active discussions with Intel, a person close to Abu Dhabi state-owned investor Mubadala Investments, which owns GlobalFoundries, told Reuters earlier this week.

Stacy Rasgon, an analyst at research firm Bernstein, pointed out that if Intel wants to acquire a large foundry and cannot acquire GlobalFoundries, there are few other options.

The next two companies, China Semiconductor Manufacturing International Corporation and Taiwan United Microelectronics, will almost certainly be banned for political reasons.

To this end, Hutcheson said that if Intel cannot acquire the foundry business, its only option may be to acquire smaller chip companies that still own some factories, such as ON Semiconductor and Analog Devices.

For decades, Intel’s goal was to make the world’s fastest computing chips. The focus on cutting-edge technology meant Intel was relatively quick to abandon older chip-making techniques — known in the industry as “process nodes.”

But most of Intel’s potential competitors in the foundry industry have taken a different approach, keeping older technology and making cheaper chips for customers who don’t need the latest technology.

“TSMC has done a fantastic job of maintaining process nodes over the years,” said Kevin Krewell, principal analyst at TIRIAS Research. When they build a new fab, they keep the old fab going. “

Intel’s ability to buy, build, or repurpose foundries for outside customers, even as it tries to regain competitiveness in advanced chips, could prove to be a challenge in a world where the industry needs talent, equipment, and materials. Difficult task.

“There may be internal limits on how many facilities Intel can provide,” said Dean McCarron, president of Mercury Research, which tracks the chipmaker’s market. “Obviously they want more capacity – just like anywhere else on the planet.”

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