Intel's Gelsinger: M&A not critical, 'nor would we rule it out'

Intel CEO Pat Gelsinger, in comments during the company’s second quarter earnings call, struck a neutral tone on foundry-focused M&A amid reports that Intel has discussed acquiring GlobalFoundries. He added that the company also has quickly built up its Intel Foundry Services (IFS) business since launching that effort last March.

Regarding the reports that Intel has been in talks about acquiring GF, Gelsinger responded to an analyst question by saying, “Obviously, we can't comment specifically on the speculation that you've been hearing, but feel well to say we are very happy with the build-out of the IFS business,” according to a Motley Fool transcript of the earnings call.

He added, “Overall, we're just seeing great momentum, over 100 customers in our [IFS] pipeline, and we fully expect that this is gonna be a great business for us. At this point, we would not say that M&A is critical but nor would we rule it out.”

Gelsinger continued, “Our view is that industry consolidation is very likely. The intense R&D, the need to move to modern and leading-edge nodes, the massive capital investments required, we just simply view that smaller players simply won't be able to keep up, and foundries without leading edge capabilities will be left behind. And we're continually seeking ways to accelerate our plans with IFS. If an acquisition can help, we will certainly not rule it out.” 

Earlier this week, GlobalFoundries CEO Thomas Caulfield told CNBC there was “nothing to that story” when asked about a possible acquisition by Intel, though other reports have suggested Intel may have not discussed a deal directly with GF, but with other parties, including possibly with GlobalFoundries owner Mudabala Investment Co.

Chip shortage

Meanwhile, Gelsinger also took time to comment on another theme dominating semiconductor sector news these days, saying that the ongoing chip shortage will “bottom out” in the months to come, strong demand continues to pressure the overall supply chain, and “it will take another one to two years before the industry is able to completely catch up with demand.”

Gelsinger also said that the company’s IDM 2.0 strategy, of which the IFS unit is a core aspect and combines Intel’s use of its own manufacturing capacity with that of third-party foundries, “best positions us to weather these challenges and work with our ecosystem partners to build a more resilient supply chain. With major fab construction projects underway in Oregon, Arizona, Ireland and Israel, we are investing for the future. But we are also taking action today to find innovative ways to help mitigate industry constraints.

Running the numbers

Gelsinger’s comments on those ongoing headlines came as Intel reported almost $19 billion in revenue across all segments for the secnd quarter of 2021, a figure that soundly beat analyst estimates and Intel’s own guidance, but represented an increase of just 2% when compared to the same quarter last year.

The company’s data center business continued to underwhelm. That unit scored $6.5 billion in revenue during the most recent quarter, which again was above guidance and up about 16% since the first quarter of 2021, but represented a 9% year-over-year decline.

Like many semiconductor companies, Intel has benefited from a resurgent PC market whose sales have been goosed by remote working and schooling trends during the pandemic. These trends help Intel’s client computing chip unit to a 33% year-over-year boost in sales to $10.1 billion.

Gelsinger and Intel CFO George Davis did seek to strike an upbeat note about the near future. They said Intel is raising its full-year guidance on revenue to $73.5 billion, about $1 billion more than previous expectations.

“We are seeing near-term recovery across traditional data center market, as well as explosive long-term demand from the cloud to the intelligent edge,” Gelsinger said. 

CFO Davis added, “For DCG [the company’s data center chip business], we expect full-year revenue to be slightly down year over year but with second-half revenue significantly higher than first half... As a result, we expect data center will return to year-over-year growth in both Q3 and Q4.”

Gelsinger also cited AI as a fast-emerging factor in the company’s growth. “Our digital society is creating data at an unspeakable pace, and AI is the key to unlocking the value from this data and turning it into information,” he said. “As the appetite for meaningful data grows and the cost of compute falls, AI workloads are proliferating into more areas. And as a result, we expect the AI market to grow at more than 20% a year. This is why we are infusing AI across everything we do.”

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