This week has had a surprising amount of news involving chipmakers and various deals being made. The world’s largest chip manufacturer, Intel (NASDAQ: INTC), announced on Thursday that it plans to expand its capacity even further by buying out third-party foundries. In order to do so, the company is rumored to be making its biggest acquisition ever, paying more than $30 billion to buy out GlobalFoundries.
Although the buyout is still not confirmed by either company, a reliable source reported to the Wall Street Journal that Intel would be buying out the chip producer, preferably sooner than later. Although an exact price tag is yet to be determined, around $30-billion or more seems to be the expected cost to buy out this company.
GlobalFoundries is currently one of the largest private specialty chip makers in the world, having been created back when AMD (NASDAQ: AMD) decided to spin off its chip-production operations. AMD still remains one of GlobalFoundries’ largest customers, with a $1.6 billion supply deal that’s reoccurring every year. However, Intel buying out GlobalFoundries could pose a major threat to AMD, considering the latter is Intel’s primary competitor right now.
According to analysts at TrendForce, GlobalFoundries is responsible for over 7% of the foundry market by revenue. Other big clients include Qualcomm, Nvidia, and other companies, all of whom rely on third-party producers to manufacture their productions instead of owning their own chip factories. Despite the ongoing shortage of chips, most companies aren’t interested in opening up their own chip foundries. As such, the manufacturing process is the primary bottleneck in the ongoing chip shortage.
The general consensus is that the auto industry has been worst hit by this chip shortage, with many car factories having been temporarily shut down due to a lack of parts. Biden’s administration has promised to spend billions to help solve this problem, with governments from other countries making similar promises as well.
Intel’s CEO, Pat Gelsinger, announced in March that the company would start outsourcing more of its chip production to third-party foundries. However, it’s not surprising that Intel might just buy out these third-party foundries instead, which is what seems to be happening right now.
Shares of Intel were down around 1.3% following the news. The chipmaker also announced its quarterly dividend on Thursday as well, which was pretty much in line with most shareholders’ expectations.
Intel Company Profile
Intel is the world’s largest chipmaker. It designs and manufactures microprocessors for the global personal computer and data center markets. Intel pioneered the x86 architecture for microprocessors. It was the prime proponent of Moore’s law for advances in semiconductor manufacturing, though the firm has recently faced manufacturing delays. While Intel’s server processor business has benefited from the shift to the cloud, the firm has also been expanding into new adjacencies as the personal computer market has stagnated. These include areas such as the Internet of Things, artificial intelligence, and automotive. Intel has been active on the merger and acquisitions front, acquiring Altera, Mobileye, and Habana Labs in order to bolster these efforts in non-PC arenas. – Warrior Trading News