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Intel Reportedly in Talks to Acquire GlobalFoundries

August 24, 2021

Intel CEO, Pat Gelsinger, is aggressively focused on putting the company on a growth path by augmenting their Integrated Device Business (IDM) and adding foundry services to their portfolio. To accelerate this goal, Gelsinger had announced early discussions to acquire GlobalFoundries (GF), the third largest dedicated foundry provider. GlobalFoundries is the spinoff of AMD manufacturing facilities combined with IBM’s semiconductor business and has revenues of ~$6B. Global Foundries is not developing <10 nm process technology and is focused on the other 60% of the market for foundry services.

As Intel maps out this strategy there are a few key items to consider:

1. Intel will continue to aggressively drive their manufacturing process technology to sub 7nm process nodes to support their internal requirements and position in processor manufacturing. In fact, Intel has recently announced their roadmap towards 3nm, and beyond, process technology nodes which would put them in the lead, ahead of TSMC if they can execute to plan.

2. Part of an acquisition strategy would be to offset the dominance of TSMC, the largest foundry provider with revenues of ~$45B or twice the level of all the other foundries combined. As TSMC is headquartered in Taiwan, this strategy may be based on geopolitical concerns and may have the support of the US and other world governments as a defensive strategy. Also, to get ahead of any potential influence that China may have on this critical Taiwanese asset.

What Would the Combined Companies’ Capabilities Be?

From a technology point of view, the combination of GF and Intel would cover most process node technologies, with Intel focused on advanced process nodes, sub 7 nm to compete with TSMC and Samsung, while GF focuses capacity with process nodes above 7nm which is approximately two thirds of the market.

There are not many options for Intel, if GF, and their current ownership (Mubadala Investment Company based in Abu Dhabi) cannot complete the deal. GF is one of a small group of providers qualified as “a trusted foundry for the US government”. This is an advantage in today’s geopolitical turmoil where significant investments are being made to onshore activities that are currently based in China. The move could help regain semiconductor technology dominance, and capacity to securely support the US and other allies.

The acquisition could also enable the development of a unique ecosystem for a broadline and US-based foundry and be the start of a new chapter for Intel. It would include other actions such as repurposing some of Intel’s older technology fabs for foundry business. This would be in the >10nm process nodes and accelerate capacity expansion and help to challenge TSMC and Samsung to offer a broad range of technologies. It’s a longer-term solution and that might require Intel to manage as both an IDM and foundry.

Other Factors to Consider

If the acquisition were to eventually be approved, Intel would have to navigate foundry support for their largest competitor AMD, along with other fabless semiconductor companies such as Broadcom, Qualcomm, Marvell, MediaTek and others. Intel may also use TSMC for some manufacturing of their own processors.

It is reported that GF is still operating in the red for Mubadala Investment Company. In addition, the company is rumored to be filing for an IPO, which would change the overall landscape.

GF has not commented on the potential discussions with Intel and like most companies, would be considering all their options.

What Does All This Mean for Jabil?

A potential acquisition of this magnitude moving ahead is still considered a long shot. However, with the new leadership team at Intel and geopolitical issues on the horizon, this is an event we want to be prepared for should it become a reality.

Due to Jabil’s diverse customer base and the supplier of complex, sole sourced, high value semiconductors, this could have an impact on many of our customers. We will continue to closely monitor the situation and report any new updates as they occur.

Summary

Shortly after Pat Gelsinger took over as Intel’s CEO in February, he made it very clear that Intel needs to be a competitive player in producing chips for other technology companies. If a deal to acquire GlobalFoundries comes to fruition, it would go a long way to achieving Intel’s competitive stance against the likes of TSMC and Samsung.

In the meantime, both Intel and GlobalFoundries continue to pledge large investments for their respective businesses in fab capabilities to counterbalance China’s dominance in the market.

What this means for the market overall, including Jabil and its customers, is a continued focus on the day to day of managing lead times to balance high demand with the prospect of material and part shortages that could last well into 2022.

It also reinforces the importance of having a diversified and connected ecosystem of supportive partners to help us navigate the rapidly changing market dynamics while delivering assurance of supply during these disruptive times.

Please don't hesitate to reach out to me directly with any questions (rudi_palmans@jabil.com)

Rudi Palmans, Director, Supplier Relationship Management