6/3/22, 1:49 PM Intel CEO’s Chip-Building Plan Has a $50 Billion-Plus Price Tag - WSJ

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https://www.wsj.com/articles/intel-ceos-chip-building-plan-has-a-50-billion-plus-price-tag-11626443905

TECH

Intel CEO’s Chip-Building Plan Has a $50

Billion-Plus Price Tag
GlobalFoundries acquisition would bring know-how to Intel’s ambitions in third-
party chip production

By Aaron Tilley Follow

July 16, 2021 9:58 am ET

Less than six months into the job, Intel Corp. INTC -2.55% ▼ Chief Executive Officer Pat
Gelsinger’s approach to reviving the chipmaker’s fortunes is emerging: move quickly and
carry a big checkbook.

When Mr. Gelsinger took over from Bob Swan in February, after years of Intel missteps, the
big question among analysts and investors was whether the company would abandon chip
production and focus on design. Such an approach has paid dividends for rivals Nvidia Corp
NVDA -4.07% ▼ and Advanced Micro Devices AMD -1.80% ▼ . Inc., allowing them to eat into
Intel’s market share.

Mr. Gelsinger’s answer, effectively, has been an emphatic ”no.” He has committed Intel to not
only make its own semiconductors but also become a so-called foundry, a maker of chips for
others—underwritten with more than $50 billion in financial commitments, if Intel’s
exploratory talks to acquire chip-making specialist GlobalFoundries come to fruition. The

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6/3/22, 1:49 PM Intel CEO’s Chip-Building Plan Has a $50 Billion-Plus Price Tag - WSJ

Wall Street Journal on Thursday reported Intel is considering an acquisition that would value
GlobalFoundries at roughly $30 billion.

It would be Intel’s biggest-ever acquisition and almost twice as large as its largest deal to
date. Intel spent around $16.7 billion for microprocessor maker Altera Corp. in 2015.

A GlobalFoundries takeover would come after Mr. Gelsinger, after little more than a month in
the top job, committed Intel to making $20 billion in chip-plant investments in Arizona. Less
than two months later, he added a $3.5 billion expansion plan in New Mexico. The Intel CEO
has said more financial commitments are on the drawing board, both in the U.S. and overseas.

Mr. Gelsinger, since he joined, has vowed that Intel’s best days are ahead of it. But he also has
stressed the company’s need to restore its reputation for reliable performance, and has
moved swiftly to bring back engineering talent to deliver on that commitment.

At times, Mr. Gelsinger has been blunt about past missteps. Intel has tried before to become a
third-party chip maker with little success. “Our first efforts were somewhat weak,” he said,
adding, “We didn’t really throw ourselves behind them.”

Buying GlobalFoundries could give Intel the know-how to have success this time, Wedbush
Securities analyst Matt Bryson said. “One of the concerns about Intel is they don’t really know
how to act as a foundry,” he said. “GlobalFoundries would give them a bunch of capacity that’s
broader and mature.”

Intel shares were up 1.51% early Friday.

The global chip shortage has put semiconductor production in the spotlight like rarely before. 
Demand for laptops has skyrocketed, and new ways of working have increased appetite for
cloud-computing services and the data centers that run on them. A surge in demand for chips
that go into new 5G phones has added to the squeeze on manufacturing capacity, chip
companies say. Car makers have had to idle plants for a lack of chips and prices of some
electronic goods are rising as a result.

The shortage has become a talking point in Washington, D.C., and other global capitals.
President Biden has promised to spend about $50 billion to boost domestic chip making.
Europe has signaled similar commitments.

Intel is betting the chip boom is lasting. Mr. Gelsinger has said the market to make chips for
others should become a $100 billion market by 2025. He’s already courting big name

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6/3/22, 1:49 PM Intel CEO’s Chip-Building Plan Has a $50 Billion-Plus Price Tag - WSJ

customers and sometime rivals to use their plants, including Qualcomm Inc. and Amazon.com
Inc.

Intel is racing to grow and secure that business. Taiwan Semiconductor Manufacturing Co.,
the world’s largest contract chip maker, in April said it would invest $100 billion over the next
three years to increase production capacity as demand surges. Samsung Electronics Co. plans
to invest about $116 billion by 2030 to diversify and boost its semiconductor output, and it is
considering an investment of up to $17 billion to build a new chip-making factory in the U.S.

TSMC had about 59% of the global third-party chip-making market last year, and Samsung is
at 14%, Counterpoint Research says.

Even as Intel plays catch-up, Mr. Gelsinger is turning to TSMC and Samsung to help make
parts of its own most cutting-edge chips that it can’t produce in-house.

Stacy Rasgon, an analyst at Sanford Bernstein & Co., is skeptical about whether buying
GlobalFoundries would help with Intel’s turnaround. “It’s lots of dollars for a marginal player
in the industry,” he said, calling such a deal “a distraction for Intel.”

Strengthening Intel’s chip-production arm is only part of Mr. Gelsinger’s plan. The other is to
ensure the company continuously designs cutting-edge chips to wow customers. “We’ve got a
lot of work to do,” Mr. Gelsinger said earlier this year.

Write to Aaron Tilley at aaron.tilley@wsj.com

Appeared in the July 17, 2021, print edition as 'Intel Bets Billions on Rising Chip Demand'.

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