In this episode of the Futurum Tech Webcast, I’m joined by my colleagues Daniel Newman and Fred McClimans to discuss the reports of Intel Corp being in talks to buy semiconductor manufacturer GlobalFoundries for about $30 billion. There’s no doubt the silicon industry is in the midst of a crisis — limited fab capabilities and supply chain disruptions (due to trade conflicts and the ongoing pandemic) have impacted chip companies, their customers, and end consumers the world over. Would an acquisition of this nature rock the chip industry or make it better?
In this conversation we covered a lot of ground, including:
- Intel’s commitment announced just a short while ago, to expand its advanced chip manufacturing capacity by spending as much as $20 billion investing in U.S. factories.
- GlobalFoundries ownership, and whether that’s a benefit or a bonus as it competes for the $52 billion budget recently approved by the U.S. Senate to try and fix the semiconductor supply chain.
- The NVIDIA/Arm deal and whether this is a defensive move by intel, along with thoughts on AMD.
- What regulators might think about this, and how it’s not just the U.S. regulators that would play a role here.
- How likely it is that GlobalFoundries would get a piece of the $52 billion recently approved by the U.S. senate, earmarked to help fix the semiconductor supply chain.
- What stands out about the proposed deal, and where the problems are.
We close the show with Fred and Daniel’s predictions on what chances they see of this actually happening and you’ll have to watch or listen to the episode for those deets. All in, this will definitely be interesting to watch play out.
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Transcript:
Shelly Kramer: Hello and welcome to the Futurum Tech Webcast. I’m your host, Shelly Kramer, one of the founding partners and a lead analyst at Futurum Research. And I’m joined today by my colleagues, Daniel Newman, our principal analyst, Fred McClimans, another senior analyst. And we are going to talk about some news that was broken by the Wall Street Journal yesterday, about the possibility of Intel being in talks to buy semiconductor manufacturer GlobalFoundries Inc.
Intel, one of the largest companies in the semiconductor industry designs and manufacturers its own chips. The interesting thing is Pat Gelsinger said earlier this year, Intel’s new CEO, that it would expand its advanced chip manufacturing capacity by as much as 20 billion and invest in factories in the US. Well, this might be that.
Daniel, I know you’ve been on news shows all morning talking about this. Are you shocked by this? Is this surprising in any way?
Daniel Newman: Well, there’s been some rumors out in the wild that GlobalFoundries could be shocked. The little known fact about GlobalFoundries is it is a privately held company, but it’s part of a Abu Dhabi-based fund, and I hope I’m saying it right because I’ve been saying it all morning, but it’s Mubadala Investment Co. They’re Abu Dhabi-based. And they do disclose financials on the company. And interestingly enough, over the past few years, it’s seen revenues decline just a little bit, but about 5.7 billion is what 2020 brought for the business.
Probably even one of the more little known insights about the GlobalFoundries business was it was the fab arm of AMD. And around 2008, it was spun off for … Basically as AMD saw its future as fabless, and it was a pretty big impasse for AMD at that time. It wasn’t the AMD we know today, the AMD that the market loves today. The company was in a lot of trouble. It had to make some big decisions. And so it went away from manufacturing.
All that to be said, Intel, to your point Shelly, made some pretty big commits at its IDM 2.0. Gelsinger is going to expand fabrication, plans multiple plants including in Arizona, including throughout the US and Europe. But we are trying to address a global chip shortage. We’re trying to address a over-saturation of manufacturing going on in the Asia market, specifically in Taiwan. And the company is trying to address the fact that it’s basically absent from the most commonly used processes, which aren’t three to seven nanometer leading edge. It’s actually the 28 nanometer and below that’s causing shortages of PCs, Chromebooks, automobiles, refrigerators, ovens, and all kinds of other things that we can’t get right now.
If I talk for one more minute, then I’ll leave you nothing at all to say. No, I’ll pause there because a lot going on. Not surprised, but there’s a lot of, there’s going to be a lot of moving parts in a deal like this getting done.
Shelly Kramer: Fred, one of the things that you said yesterday when our team was discussing this internally was that the most successful firms become aggressive during disruption and they acquire and expand rather than retreating and retrenching. And Intel has had an interesting journey, some good things, some not so good things. So talk with us a little bit about your thoughts as you kind of digested this news over the course of the last 16 hours.
Fred McClimans: Yeah. Well, there was a number that came to mind when I first heard this. And it wasn’t the 30 billion. It was the 52 billion. That’s the amount of money that the US government is kind of tossing out there into the semiconductor fab space, trying to build up, I guess, the best way to put it would be sort of the national interests of the US and kind of wean us off some of the overseas supply chain issues that we are having a lot of issues with, particularly with China over there right now.
But, this is … I kind of look at this as sort of a half and half move. It’s half defensive against some of the other players that are out there. And certainly I think it’s defensive in a way against NVIDIA and their proposed acquisition of ARM. I kind of look at that as sort of the IP acquisition. NVIDIA’s saying, “Look, we’re really going to go down this path here. We want IP.” We can see that in some of the software tools that they’ve been rolling out with the Omniverse and so forth. They’re an IP company. Intel, “Great, have your IP. We’ll raise you a fab.” And they’re going all in on the manufacturing side.
It is interesting though, because this particular deal, it doesn’t expand new capacity. It doesn’t change the supply chain issues. In fact, if anything, it brings a lot of complexity into Intel’s plate at a time when complexity is clearly not our friends here. But I do give them credit. If this actually pulls through, I do firmly believe that those companies that really succeed over the long-term, they are the ones that look at a disruptive moment and go, “I’m going to take advantage of that. I’m going to find a company out there,” like the GlobalFoundries, which has been rumored for a pending IPO in 2022. So you know they’ve kind of slimmed down. They’ve got their good face on and getting themselves mean and lean for the IPO process. So they look very attractive right now to somebody like an Intel.
But it’s definitely a move that I think will shake things up. And it certainly starts to create a little bit of a division between companies like TSMC and now perhaps the bigger and stronger Intel and NVIDIA and others, where we start to see them kind identifying who they really want to be when they grow up even though they’d been around for quite a while.
Shelly Kramer: So I have a question about AMD. AMD tech, GlobalFoundries is a chip manufacturer and partner through 2021. Where does that …
Fred McClimans: Yeah, I think it actually goes on for a few more years here with that. And that’s an interesting one because AMD, when they went into that fabless model, they are reliant upon others like GlobalFoundries and TSMC to actually manufacture their products there. So, AMD, they’re kind of in, I don’t want to say an awkward position here, but I’m not sure where they end up or where they try and align themselves in the marketplace.
To Dan’s point, they really are not the same company they were when they spun the fab facilities out back in ’08, ’09. They really have reinvented themselves. And they are in the thick of the processor design space. And that’s a good place for them to be. But I think at some point, you have to start to ask the question, is there something down the road that allies or allies an AMD with somebody bigger, create some critical mass around them, because right now we’re definitely seeing a sort of retrenchment into size. Size is what is going to get everybody through the next few years of disruption here.
Shelly Kramer: Size matters.
Fred McClimans: Size matters.
Shelly Kramer: Or so they say. I don’t know. For sure.
Daniel Newman: It might be worth weighing in a little bit too, the relationship between AMD and GlobalFoundries beyond the 1.6 or so billion dollar deal, multi-year, it’s been continuous, although it’s been declining ever since the split. It’s primarily specialty parts and pieces related to the manufacturing of certain chip sets. The vast majority of AMD’s manufacturing, especially at the leading edge, has all been offloaded to TSM.
However, in recent time, GlobalFoundries has been able to see a little bit of a boost from AMD through specialty manufacturing capabilities and their new chiplet or 3D packaging. So it would be an interesting challenge because if Intel was to take over and acquire GlobalFoundries, there is a long-term, this does mirror a lot of what’s going on with ARM too, is these are long-term licensing agreements.
People would have to work together for at least a period of time. But at this current point, there is no more capacity. Taking yourself off the list in order to make some sort of statement about not wanting to work with your competitors would be devastating to a fabless company like AMD. So there’s no way they can stop working with GlobalFoundries. But the question mark then becomes all the regulatory. So you know you’re going to have this huge regulatory issue to resolve with the ARM-NVIDIA deal. There’s going to be a big regulatory issue to get past here as well with a deal like this that would have all these fabless chip makers coming to Intel, asking them to make them chips.
But I will add, it still does more to solve the problem. And Fred, you said it doesn’t solve anything in terms of capacity. It only doesn’t solve anything if the footprint isn’t expanded upon or if Intel isn’t able to apply resources and scale. And I’m guessing in my mind is Intel says, “One, we’re an American, US-based company, US-based ownership at 52 billion. We’re going to get support. We’re going to get support for the new fabs. We would get support to expand the GlobalFoundries footprint,” whereas a Abu Dhabi based fund that owns GlobalFoundries may not get that same support with this 52 plus billion that is going to become available.
Fred McClimans: You don’t think so? I tend to agree with you on that. I think GlobalFoundries as an independent, privately-held Abu Dhabi owned company, yeah, they’re not getting that $52 billion here. And like I said, that’s part of Gelsinger’s plan here. I’m assuming that we’ve got that critical mass. We need to size. And I fully expect that the commitments that they’ve made previously, the 20 billion in new fab facilities, I have no doubt in my mind that Intel will go full head on into that, separate from this particular deal here.
Shelly Kramer: Yeah, it makes perfect sense. And you took my question right out of … the question right out of my mouth in terms of regulators Daniel. So basically we think this is going to be kind of a regulator friendly deal. Is that what you’re thinking?
Daniel Newman: No, no, not at all. I don’t think any game right now is regulator friendly when it comes-
Shelly Kramer: That’s true-
Daniel Newman: … to a big tech company that holds … Intel holds almost 90% of notebooks, 80% of server. So even despite what has been material losses to the likes of AMD, small but material losses to ARM, especially with some of the hyperscale cloud players, they’re still a very strong player. And you can’t use the word dominant because first of all, there’s all kinds of implications of that in the regulatory world. Increasingly, the scrutiny that we’re going to see, I wrote recently about Lena con, but every deal is going to get the full proctor at this point. Can I say that on Futurum Podcast? I guess I can.
Fred McClimans: Sure.
Daniel Newman: The point overall is that what’s going to happen is all of these companies are going to be coming to Intel. So you already have a company that’s very big. And I thought it was brilliant that Pat Gelsinger said we’re going to deepen our foundry fab services, Qualcomm, NVIDIA, AMD, all come squabbling to Intel. We need more production, more capacity, more chip, because even if they give the mass of their work to TSM, there’s more demand than there is supply. So if they can fill that, they’re going to get a certain amount of the workload. But remember, this has to pass regulatory scrutiny, not just in the US. It’s got to pass in the EU, it’s got to pass in the UK, it’s going to have to pass in Taiwan and in China and likely in Japan. We’ve seen this show before. And this takes time.
The ARM deal, for instance, is one of those that everybody’s looking at, saying, “Well, ARM doesn’t have any of the CPU business. Why not approve it?” Well, the biggest thing regulators are asking the lawmakers to look at right now with the new antitrust laws, can you see the future? Can you predict that, okay, right now, NVIDIA has almost 0% of CPU market, but look at what they’ve done in the GPU market. And now look at what would happen if they had the ability to control the instruction set that many of the companies currently and in the future are going to use to build server products and notebook products. What could happen? This is like what would have happened with WhatsApp and Instagram to Facebook? What would happen with Android to Google?
I’m not saying that what would happen would be antitrust or would be anti-competitive or would be harmful to consumer, but they’re being asked to look at that. Historically, the letter of the law was you look at the current scenario, the current situation, and you would say this should pass because this adds competition clearly.
Something like this, while you’re talking to your point, I’ll see your IP and raise you a fab, what we’re really talking about is a platform. Intel gains the platform of being the manufacturer of chips to all of the companies in the US and the world that want more capacity. That’s the question that’s going to have to pass scrutiny. But, if there isn’t a company that’s more prepared and correct in the US to potentially take on this role is also Intel. So this goes back to some of our Qualcomm squabbles that we’ve had in the past, where it’s like, do we take out the innovator by weakening them through letting them charge less for innovation that gets invested back in R&D? Or do we want to strengthen our national security interests by empowering US-based companies under US-based law to have more control over the ecosystem? So this is a question we’re asking about all the companies.
I think it’s going to be tough. I don’t think the US is going to have a problem with it. I think where you’re going to see regulators hit this hard is going to be China, Taiwan, and other parts of the world where they’re going to see this as potentially competitively damaging to their current businesses.
Fred McClimans: No, it is interesting though, if you look at that antitrust argument there, a lot of these arguments that you can apply to Intel, everybody has to go to Intel for manufacturing. We heard the same thing a few weeks ago. Well, everybody has to go to ARM for IP. Is that fair? Is it right?
I think there’s a huge national movement right now that says, look, we do want to kind of bend those rules a little bit to make sure that we’ve got the infrastructure that we need. Because when you look at these chips are out there, it’s not just, okay, we didn’t ship enough servers this year. No. It’s the automobiles. It’s the phones. It’s all the electronics in your house. Everything that every consumer relies upon, everything that every hospital relies upon. They’re not the leading edge chips. They’re the trailing edge chips. And we’ve got to do something to kind of up that capacity.
And I do think there’s this … will be a pretty strong push in the US at least, and maybe overseas counters this to keep that manufacturing here, just like we would want to keep the IP here as well. Go back five, 10 years ago. I don’t think we would be having this level of discussion about this. It just wouldn’t be there. But you’ve had trade wars. You’ve had supply chain disruptions. You’ve had manufacturing that has just not been built up to keep up with the pace of demand. I mean, we are transforming very fast, faster than anybody ever thought we would into the digital era. And that’s causing some angst right here, not to mention pandemic.
Shelly Kramer: Well, and of course, we’re not going to slow down.
Fred McClimans: No.
Shelly Kramer: I mean, nothing that’s going on is going to slow down. So I think that it is an interesting situation. This makes perfect sense for the US especially with our trend toward nationalism and bringing things back onto US soil and all that sort of thing. We’ve got the regulators and other countries issues. And we’ve also got, we’ve got an administration that is looking at all things big tech, and thinking in many instances that those are bad things to have for those big tech companies to have power. So it’ll be a really interesting situation to watch play out, for sure.
Daniel Newman: It’s interesting how they’re going to conflict though, because obviously Joe Biden came out, did the big multi month study on semiconductors. He initialized a plan to make bigger investments. We’ve talked about that a few times. But concurrently, so you’ve got this demand and desire to do more on soil manufacturing of semiconductors, but concurrently, you’ve got this massive attention to antitrust. And it isn’t really in the semiconductor space, possibly look at this deal and not scrutinize it when you’re looking at every single thing that Google and Facebook and Apple and Amazon are doing, and you’re scrutinizing them to such the nth degree. And so it’s about consistency. It’s about the letter of the law and the changing law.
And also Fred, just the one point you made about ARM is, today x86 and ARM, and you’ve got risk five, and there’s a few different instruction sets. But I think that question mark about the mobile automotive, when you have the control to democratize the instruction sets that are going to be used to build semiconductors that, it’s one of those things that right now there’s absolutely not a single antitrust activity that would be happening at day one, but day 5,000, day 10,000, the opportunity would exist.
But I always say, can you penalize a company before they’ve … This is like Minority Report. Because NVIDIA is clearly saying we will honor licensing, we will democratize, and we will add IP and capacity and capabilities that we have developed to make the ARM IP more valuable so that all the OEMs and OEMs that build on the ARM instruction set will build better processors, better technologies at the edge and the core and the data center. So it could be good.
And that’s the funniest thing about all of this is you can really do the good cop, bad cop on any of these things. And you can come up with a whole bunch of arguments as why they shouldn’t go through and why they should. Right now inflation for instance is a by-product in many ways in things like appliances, technology, automotive, is a direct related byproduct of our chip shortage. There are other factors, but our supply chain is impacted by the fact that we can’t even produce a Chromebook because a USB adapter, a 28 nanometer USB adapter cannot be completed. It’s not that five nanometer chip for the general CPU. It’s some odd part that is holding back manufacturing, causing game consoles and cameras to explode in price. And we’re seeing it’s taking markets, it’s stirring markets in crazy ways. And so we need to solve this. And I do believe Intel is likely one of the best options domestically to solve this problem.
Fred McClimans: I think they’re probably one of the only that’s capable of really focusing the resources to kind of fix the issue here state side. But it is interesting when you talk about the antitrust and the breakup of big tech. What we’re really talking about is big tech from maybe an Amazon perspective or a Facebook or a Google perspective or a Twitter, or whoever. That in my mind is perceived as completely 180 degrees, the other direction from Intel, NVIDIA, and others.
Congressman regulator, they can look at that and they can go, “Hey, look. We understand manufacturing. We understand jobs. We understand components coming in, being assembled and product going out the door.” What they don’t understand is how a Google works or the fake news engine that happens with Twitter, with Facebook, and other social networks. Those are things that they just can’t wrap their heads around. They just can’t do it. And it causes a lot of angst. And there’s a lot of politicization in there because, well, you’re censoring this view, or you’re censoring that view. I don’t see any of those issues coming in when you talk about Intel or NVIDIA as sort of big tech. That’s a very different ball game there.
Shelly Kramer: Yeah, but they’re-
Fred McClimans: ..controversial.
Shelly Kramer: But the NVIDIA deal is controversial. I mean, there are problems in the industry with that to a certain extent. Dan, I want to follow up on something that you said just now that was, Intel makes perfect sense. Back up a little bit and say that GlobalFoundries, for someone listening who may not know, has more than 15,000 employees operating in 14 countries with over 250 customers, and they have more than 10,000 patents, including applications. And GlobalFoundries’ CEO, Tom Caulfield, indicated at some point a plan for an IPO in 2022. Okay. Not far away. If not Intel, who else even makes sense?
Daniel Newman: Well, I don’t see anyone else ever passing scrutiny at this point, because like I said, the others potentially like in overseas, what a TSM or someone like that makes sense on semi, it doesn’t solve the problems that we’re trying to solve here. I do think the IPO is still very viable and real. And I think they’re going to look at these numbers and say, ARM, which revenue wise is substantially smaller than GlobalFoundries is getting 40 billion. So where would the number have to land? And again, very different because ARM is that passive licensing that NVIDIA stands to make money on every single device that ships out. It’s a beautiful business model. This is a much heavier, much more risky business, significant real estate costs, manufacturing, building costs, constant equipment updates and upgrades. So it is different.
But I think that number, I think they’re going to scrutinize that number very closely and say, “Could we get 50 billion or 60 billion in IPO?” Are there enough synergies that the investors feel that there’s a win? And that’s where I really think it comes out in the wash, is that I could see Intel pressing to get to a number, to try to take it off the table. I don’t think, like I said, under a traditional calculation for M&A that you would calculate out a deal even to 30 billion. I don’t. When you’d probably scale down EBITDA and look at the type of industry this is, where an ARM might get a 20 or even 40 plus time multiple for being a recurring license-based business. This has some big contracts and some big customers, but again, it’s got big capex. And so it’s going to be looked at very differently.
But what Intel can do with this business in terms of being able to layer on resources, take government support and help in partnership to be more competitive and to force all of its competitors, those that have eroded little pieces of its various businesses and bring revenues back, it’s like cycling it out. Sure, you’ve got 3% of our notebook business AMD, but we just got $2 billion back from you in fab business. So, the founder and fab business always made sense to me for that. This is a gap in the market. There aren’t enough people playing in this space, and Intel’s got the resources and they’ve got the commitment. And it seems the board from the moment Gelsinger came on board was very supportive of it expanding its investments in this particular space.
Fred McClimans: Well, look at it this way. If the IPO takes place, GlobalFoundries is successful there. You’ve got a competitor to Intel. I mean, there is a portion of this that is in my mind clearly taking a competitor off the table. You acquire GlobalFoundries. You’ve got all of those resources. You’re not competing with them down the road. You’re not competing with them for manufacturing in the fab space. You’re not competing with them for the $52 billion in subsidies. So, there’s a lot to be said for that aspect of this here.
Shelly Kramer: Yeah. Makes perfect sense. Well, we’re going to wind up our show here. Anybody have anything else to add before we call it a wrap?
Daniel Newman: Don’t ask me that. I can talk for hours. No, I mean, I guess the summation is, I’d love to ask you guys all this, and I’d love to just maybe opine, but I’ll temporarily take the host seat. Does the deal get done?
Shelly Kramer: You know that’s like asking our crystal ball question that we used to ask in these webcasts. I do think that two points made earlier about running after this $50 billion that’s on the table is there. I don’t see much opportunity for GlobalFoundries based on their ownership and all of those nuances getting a portion of that. I mean, the deal does make sense in some ways. I feel like the biggest hurdles are, as we talked, the regulators in other countries that I think will be difficult to get past. So, my answer is, I don’t know. 40%-
Daniel Newman: Say it. Hold on. Say it. 40%. Fred, he’s doing Final Jeopardy here.
Fred McClimans: 40%.
Daniel Newman: Final Jeopardy.
Fred McClimans: Right now I give it a 40% chance of going through. It’s very early.
Shelly Kramer: It’s very early.
Fred McClimans: There are preliminary talks taking place but …
Shelly Kramer: Yeah.
Daniel Newman: Oh, no. I successfully killed the SAS deal this week with Broadcom by writing an op-ed about it. I feel like maybe the reason I get asked these questions in the media is because I’m willing to make really bold, bold … I’m going to say 10-90 that it doesn’t happen. But I would say it’s 100% a great deal for Intel if they can-
Shelly Kramer: It is 100%. Yeah. It is 100% a great deal.
Daniel Newman: So I think there’s a lot of hurdles. And I think the price tag is probably going to see it wind up a little bit if this is going to happen. But I’ll give you one more assessment. If it does get approved, it’s either both. If they go forward, either both deals get approved or neither deal gets approved. I feel like this is a little bit of a posturing. And you mentioned defensive. I think there’s a little more strategy in this move than just about the acquisition. I think it’s testing the regulatory environment.
Shelly Kramer: Yeah.
Fred McClimans: Yeah.
Shelly Kramer: Yeah.
Fred McClimans: I agree.
Shelly Kramer: We agree on that.
All right everybody. Well, thanks for hanging out with us today. To our audience, if you haven’t yet subscribed either on YouTube or on your favorite podcast streaming channel, do that because we have great conversations and we want you to be a part of them. Gentlemen, thank you for your time today. And I know I’ll talk to you a hundred more times today, so.
Fred McClimans: Yes.
Shelly Kramer: Bye everyone.
Fred McClimans: Thanks for having us.
Daniel Newman: Adios.
Author Information
Shelly Kramer is a Principal Analyst and Founding Partner at Futurum Research. A serial entrepreneur with a technology centric focus, she has worked alongside some of the world’s largest brands to embrace disruption and spur innovation, understand and address the realities of the connected customer, and help navigate the process of digital transformation. She brings 20 years' experience as a brand strategist to her work at Futurum, and has deep experience helping global companies with marketing challenges, GTM strategies, messaging development, and driving strategy and digital transformation for B2B brands across multiple verticals. Shelly's coverage areas include Collaboration/CX/SaaS, platforms, ESG, and Cybersecurity, as well as topics and trends related to the Future of Work, the transformation of the workplace and how people and technology are driving that transformation. A transplanted New Yorker, she has learned to love life in the Midwest, and has firsthand experience that some of the most innovative minds and most successful companies in the world also happen to live in “flyover country.”
