Intel CEO Calls Chip Maker ‘Willing Buyer’ as Semiconductor...

Intel CEO Calls Chip Maker ‘Willing Buyer’ as Semiconductor IndustryConsolidates

The economics of the industry make deals among chipmakers likely, Pat Gelsinger says

By

Asa Fitch

Intel Corp. INTC 1.09% Chief Executive Pat Gelsinger is committed to buying other chip-makers as the industry consolidates, despite a leading acquisition candidate’s plan to go public.

“There will be consolidation in the industry,” hesaid in an interview. “That trend will continue, and I expect that we’re goingto be a consolidator.” Mr. Gelsinger, about six months into the CEO job, saidhe plans to use mergers and acquisitions to support the company’s revival plan.

Intel had been in talks to buy GlobalFoundries, The Wall Street Journal previously reported. The talks cooled as GlobalFoundries focuses on an initial public offering, people familiar with the matter said.

GlobalFoundries now hasconfidentially filed for an IPO that could value the company at around $25billion, a person familiar with the matter said. GlobalFoundries is owned byMubadala Investment Co., an investment arm of the Abu Dhabi government. Reuterspreviously reported the IPO filing.

Mr. Gelsinger, in the interview,declined to comment on GlobalFoundries directly, though he signaled Intel’scontinued interest in deals. “M&A takes willing buyers and willingsellers,” he said when asked about Intel’s pursuit of GlobalFoundries, adding“I’m a willing buyer.”

Mr. Gelsinger, who was involved inabout 100 acquisitions in his prior roles as president of EMC Corp. and laterCEO of VMware Inc., said he is looking to bring some of that experience toIntel.

The economics of modern chipproduction make deals likely, he said. The cost of cutting-edge chipmanufacturing has risen rapidly in recent years, narrowing the number ofcompanies in the field and likely pushing them to combine forces, he added.

Consolidation hasbeen playing out for years. Among the most recent big deals, MarvellTechnology Group Ltd. last year said it would buy Inphi Corp. and Analog Devices Inc. said it was buying rival Maxim Integrated Products Inc. for more than $20 billion.

Mr. Gelsinger said in the interviewthat the chip-manufacturing industry has been going through a prolongedreshaping. “Ten to 15 years ago, there were a good dozen companies that weremaking leading-edge technology, and today that’s down to three because it’sextremely capital-intensive and R&D-intensive, and those effects arecontinuing,” he said. A modern, top-of-the-line chip factory, he said, costsmore than $10 billion today.

Intel is one of theheavyweights in chip making, alongside TaiwanSemiconductor Manufacturing Co. and South Korea’s Samsung Electronics Co.

Mr. Gelsinger saiddeals aren’t at the top of an agenda that is focused on turning around the company he took over after a series of missteps. He has committed to spend big on his strategy to expand the company’s manufacturing footprint, add a contract chip-making arm, and catch up to rivals that gained a technological edge in recent years.

Intel is investing $23.5 billion innew factories in Arizona and New Mexico, and nearing completion of a $3 billionexpansion in Oregon. Intel has said more investments in the U.S. and abroad areplanned.

The company isn’tjust relying on its own manufacturing in its turnaround. Intel on Thursdaydetailed plans to have TSMC help make some of its newest graphics andartificial-intelligence chips. Intel is turning to TSMC to make thosecutting-edge chips while it works to improve its in-house capabilities as partof a push to regain the technology lead in the industry.

Mr. Gelsinger, in his few months inthe job at Intel, also has had a busy political agenda. He is urging the Bidenadministration to provide greater clarity on its plans for trade with China, onwhich then-President Trump imposed tariffs. “What we’re looking for is clearpolicy,” he said, adding that 25% or more of Intel’s business is tied to China.

Intel has some chip operations inChina and may add more as part of its expansion plans.

And Mr.Gelsinger is asking governments to help pay for some of the expansion he is planning, tapping into concerns about chip supplies spurred by a global shortage of semiconductors.

Chip-industryofficials expect the shortage that has led to cuts in car production and driven up prices of some consumer electronics to ease in the coming months, with some effects likely to be felt for a long time. Mr. Gelsinger said the shortage could last into 2023.

The pandemic has increased spendingon digital items, from laptops to data centers used for computing services thatbusinesses and consumers increasingly rely on. That has contributed to thechip-supply bottleneck, but also provided some benefits to chip suppliers,industry officials have said.

Mr. Gelsinger saidthat the shortage is driving up some of Intel’s manufacturing costs. Thecompany, like other semiconductor suppliers, has said it is passing on some but not all of those increases to customers. In some cases the shortage is allowing companies to focus on selling higher-value products, Mr. Gelsinger said, providing an earnings benefit.

There are few indications that the scaling up ofchip industry production will swamp demand anytime soon, he said. “I’m justanxious mostly for the day that I can actually say, ‘Oh, I have a few spareparts.’”