Yesterday, the Wall Street Journal reported that Intel (NASDAQ: INTC) could be exploring the acquisition of GlobalFoundries (GF). The report cited unknown sources saying that the deal could be valued at $30 billion.
The report also said that GlobalFoundries was created after Advanced Micro Devices or AMD (NASDAQ: AMD) decided to spin-off its chip-production operations and is one of the largest specialist chip-production companies.
The Wall Street Journal said that AMD continues to be a big customer for GlobalFoundries, and entered into a multi-year $1.6 billion chip-component supply deal with the company earlier this year. The report cited data from TrendForce and noted that GlobalFoundries accounts for 7% of foundry market revenues globally.
Following the news, Robert W. Baird analyst Tristan Gerra reiterated a Buy and a price target of $85 (52.3% upside potential) on the stock. Gerra said that the acquisition of GF would “offer a great fit” for Intel.
Back in April, Gerra speculated in another research report that Intel could acquire a specialty foundry for its new Intel Foundry Services (IFS) business division. The analyst added that GlobalFoundries “would represent an ideal candidate to kick start Intel’s foundry efforts.”
Intel Foundry Services
Intel’s new CEO, Pat Gelsinger, proposed investments of as much as $20 billion into two new chip manufacturing facilities in Arizona earlier this year. He dubbed this strategic move as one which would reinvent the company.
Intel said at its Q1 earnings call that it planned to expand its foundry operations to other locations and intended to establish “Intel Foundry Services as a major provider of committed foundry capacity in the U.S.” (See Intel stock charts on TipRanks)
However, Gerra believes that the success of INTC’s Foundry Services is reliant on an acquisition.
The analyst added that Intel has two choices, either acquire a leading position in foundry services or over the longer term, become fabless. Gerra commented, “The stakes are high, and a successful Foundry Services business would have very positive implications for INTC’s valuation rerating over time, in our view. The acquisition of Global Foundries would best meet Intel’s core competencies goals, in our view.”
The analyst believes that the acquisition of GF could diversify INTC’s end markets, especially Automotive.
GlobalFoundries Bid to Expand Capacity
GlobalFoundries said last month that it would invest $4 billion, along with the Singapore Economic Development Board (SEDB), and investments from some of its committed customers to construct a new fab in Singapore.
The company stated in its press release that demand for semiconductors is rising at a faster pace, and to meet this demand, “GF has planned capacity expansions at all its manufacturing sites in the U.S., Germany and, starting with the construction of phase one of its 300mm fab expansion, Singapore. When complete, GF will add capacity for 450,000 wafers per year, bringing GF’s Singapore campus up to approximately 1.5 million (300mm) wafers per year. ”
Over the last 10 years, GF has invested more than $15 billion at Fab 8, its most advanced semiconductor facility located in Malta, NY. This year, the company plans to double its investment to expand its global capacity and intends to invest $500 million in Malta, NY alone.
According to analyst Gerra, considering the capacity expansion, GF “would bring exactly what Intel needs: a leading position in 12nm+ manufacturing, and long-term customers contract such as the 7-year NXP/GF supply agreement.”
Furthermore, the analyst added that INTC could offer customers of GF who “wish to move below 12nm a leading node roadmap, along with a well-needed manufacturing geographic diversification.”
Consensus among analysts on Wall Street is a Hold based on 9 Buys, 9 Holds, and 7 Sells. The average Intel price target of $62.81 implies approximately 12.5% upside potential to current levels.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
