Thursday was another rough day for the semiconductor space as most of the biggest US-traded chipmakers traded in the red as the global chip shortage overshadowed what ended up being a solid earnings report from TSMC (which also affirmed plans to expand its production capacity in the US and Japan).
But even bigger news concerning the troubled semis space broke Thursday evening when WSJ reported that Intel has agreed to the biggest acquisition in its half-a-century existence.
According to the American business broadsheet of record, Intel has agreed to buy chip fabricator GlobalFoundaries for $30 billion. Most importantly, the deal marks the company's biggest move yet into the foundry segment, a segment currently dominated by Taiwan Semiconductor Manufacturing - or TSMC - the world's most important chipmaker. Put another way, the deal is the biggest volley yet in new Intel chief Pat Gelsinger's "war" on TSMC. As we noted above, news of the deal is breaking shortly after Taiwan Semi announced its plans to expand production in the US, which is Intel's "turf" (Intel is also investing $20 billion into expanding its production facilities in the American West).
Wowzers:— Mike Bird (@Birdyword) July 15, 2021
Intel is exploring a deal to buy GlobalFoundries, according to people familiar with the matter, in a move that would turbocharge the semiconductor giant’s plans to make more chips for other tech companies and rate as its largest acquisition ever. https://t.co/WaGqo3hgEX
As for GlobalFoundaries, those who aren't semiconductor experts can be forgiven for having never heard of the company. It's presently wholly owned by Mubadala Investment Co (the Abu Dhabi sovereign wealth fund made infamous by its association with 1MDB, the Malaysian sovereign political slush fund that was pillaged by members of the former PM's inner circle after being seeded with money raised by Goldman Sachs. The company was looking to go public, but instead of going public, or merging with a SPAC, Intel is going to buy it for $30MM).
Per WSJ, GlobalFoundaries itself doesn't appear to be in direct talks with Intel - the deal is being negotiated by Mubadala, which clearly sees an exit opportunity in the fact that Intel and its biggest Western rivals are now going toe-to-toe with TSMC.
For all we know, one of these rivals could come through with a higher bid, stealing the deal from Intel, or sparking a bidding war.
WSJ describes GlobalFoundaries as "GlobalFoundries is one of the largest specialist chip-production companies. It was created when Intel rival Advanced Micro Devices in 2008 decided to spin off its chip-production operations."
Interestingly, Intel rival AMD "remains a big customer for GlobalFoundries—agreeing to a multiyear, roughly $1.6 billion chip-component supply deal this year—and that could complicate a takeover by Intel. GlobalFoundries is relocating its corporate headquarters to Malta, N.Y. from Santa Clara, Calif."
Tech analyst Patrick Moorhead tweeted following news of the deal that if it's consumated, it would transform Intel into a "full-stack provider" with chips for critical technologies like 5G, IoT and much more. However, he expects the regulatory hurdles to be "immense" (keep in mind, President Biden is pushing sweeping antitrust policy changes by executive fiat).
On Intel acquiring GlobalFoundries: I can see why it would want to as it would make Intel a full stack provider with specialty tech for 5G, IoT and automotive. But the regulatory hurdles would be immense.— Patrick Moorhead at #MSInspire (@PatrickMoorhead) July 15, 2021
One of the contributing factors behind the current global semiconductor shortage is that many chip designers like Nvidia and Qualcomm now prefer to outsource the fabrication of their chips to companies like TSMC and GlobalFoundaries. Just last month, GlobalFoundaries announced plans to build a new production site in Singapore for $4 billion.