Intel faces layoffs, possible takeover bid for Qualcomm, Foundry spin-off

Founded in 1968, Intel was an American mainstay for designing computer parts, but has faced a decline in recent years. A potential takeover of Qualcomm could infuse some cash, but chip industry analysts say it would also raise antitrust and enforcement issues in the current political environment. Despite the fact that there is little overlap between Qualcomm’s mobile chip business and Intel’s focus on computers and data centers, the Biden administration has historically been more skeptical of mergers.

“There is very little overlap. I think the argument can be made that there is no consolidation, but I would still think this would get a very close look instead of just a rubber stamp to the finish line,” said Logan Purk , principal analyst. at Edward Jones.

The foundry side of Intel’s business could also be called into question, putting billions in its CHIPS and Science Act funding at risk. Intel has been a baby for American chip manufacturing with a recent $3 billion increase in CHIPS Act funding.

“The government literally has a vested interest in this business succeeding,” Purk said. “It’s difficult if you’re Qualcomm wanting to develop that and put yourself in that position politically.”

Qualcomm previously explored buying parts of Intel’s design business, Reuters reported.

More independence for Intel foundries

Making the foundry an independent subsidiary “is the easiest way, today, to unlock value with Intel, given the substantial losses and the investment that this foundry business requires,” Purk said.

Giving the foundry more independence allows it to “not be tied to the ups and downs of the processor market, all of which have fallen out of favor over the past couple of years,” said Dan Morgan, senior trust portfolio manager at Synovus.

Intel foundries would be expected to compete more with companies such as GlobalFoundries, TSMC and Samsung. Intel shares rose 8% after Monday’s announcement.

Compared to companies like Nvidia that design chips and pure-play foundries like TSMC that make chips for customers, Intel’s dual role of playing both roles has historically caused hesitation among its peers and potential customers.

“There’s always some of that paranoia that if you’re a top chip designer and you’re sending your designs to Intel to have them build your chips, yet they’re competing and building similar chips — I think that makes some people angry,” Purk said.

Intel’s continued focus on CPUs rather than GPUs, which Nvidia focuses on and is crucial for AI computing, has also hurt its relevance amid the AI ​​boom, analysts said.

“There’s so much going on, and the amount of money it takes to do all these different things is just off the charts,” Morgan said.

When Intel’s rival Advanced Micro Devices was in similar financial trouble in the 2000s, it split its design and manufacturing businesses into two companies and sold its foundries to an Abu Dhabi investment firm. The expensive part of chip production became GlobalFoundries, one of the largest foundries in the world. Under the leadership of CEO Lisa Su, AMD has finally focused its bets on more cutting-edge technologies, such as GPUs with high computing architecture and AI.

Intel faces a more difficult geopolitical environment in its next moves. Selling to a foreign company is not a “politically viable situation” because of national supply chain security concerns at present, said Stacy Rasgon, senior analyst at Bernstein Research.

Intel’s bet on Amazon

Gelsinger also announced Monday that the company will produce AI fabric chips for Amazon Web Services using its Intel 18A process node and a custom Xeon 6 chip on Intel 3.

The expanded collaboration between the two tech companies helps provide more confidence that Intel will capture the AI ​​boom, Rasgon said. However, doubts remain about this announcement, as Amazon already produces its own custom chips.

“You have to take into account that Amazon already makes two chips on its own and still buys from Nvidia. Intel threw AI a bone, but I don’t know how much it really helped them,” Morgan said.

Intel also faces an uphill battle given its history of falling behind major development requests for its customers. After using Intel chips for over 15 years on its Macbooks, Apple launched its own in-house chip design with the M1 in 2020 and contracted manufacturing to TSMC.

“Intel completely missed the mobile chip revolution by basically turning down Apple’s business because they didn’t think it would be a big enough product, and we know how that turned out,” Purk said.