An Intel deal for GlobalFoundries could either be a ‘huge distraction’ or a ‘great fit’


Analysts are split on the merits of a possible deal between Intel Corp. and GlobalFoundries after a report indicated that Intel has engaged in merger discussions.

The Wall Street Journal reported Thursday that Intel
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has held talks about a potential acquisition of chip manufacturer GlobalFoundries in a deal that could be valued at roughly $30 billion. Global Foundries is currently owned by the investment arm of the Abu Dhabi government.

An Intel spokeswoman said that the company “does not comment on rumors or speculation.”

The Wall Street Journal reported that any deal talks didn’t seem to include GlobalFoundries as a spokeswoman for the company said that it wasn’t in talks with Intel. A spokeswoman told MarketWatch that GlobalFoundries had “no further comments on the story.”

Shares of Intel are off 0.4% in Friday trading.

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Intel’s new chief executive Pat Gelsinger has set out to grow the company’s foundry operations and manufacture chips for other companies. A potential purchase of GlobalFoundries could provide extra manufacturing capacity and a customer base, but some analysts have questions about whether the deal would make sense.

“While taking on GF’s capacity would enable Intel to accelerate their foundry strategy, we think such a move would leave investors to question Intel’s move for capacity footprint vs. the ability to utilize GF for leading-edge process node capabilities (reminder: in 2018 GF abandoned work on its 7-nanometer product effectively ceding the leading-edge race to TSMC
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 Intel, and Samsung),” wrote Wells Fargo’s Aaron Rakers, who has an equal weight rating on Intel’s stock and a $70 price target.

Bernstein’s Stacy Rasgon made a similar point. “While a credible source for trailing node & specialty products, GloFo has stopped leading-edge manufacturing and can do nothing to help Intel’s woes on this front,” he wrote in a note to clients.

He also raised concerns about the economics of GlobalFoundries’ business, especially in the context of the $30 billion price from the reported deal talks. His interpretation of disclosures from Mubadala, the Abu Dhabi investment arm, signals that GlobalFoundries hasn’t been profitable and would likely be dilutive to Intel’s margins.

“A deal like this seems almost certain to be a huge distraction,” he said, while maintaining an underperform rating and $43 target on the stock.

Baird analyst Tristan Gerra was more upbeat in a note titled “High Stakes, High Rewards,” which reiterated his argument that Intel needs to make an acquisition to succeed with its new foundry ambitions.

He believes a deal with GlobalFoundries “would be strategic and offer a great fit” for Intel, noting that it could help diversify Intel’s end markets, including in the automotive space.

“The stakes are high, and a successful Foundry Services business would have very positive implications for Intel’s valuation rerating over time, in our view,” he wrote, while reiterating an outperform rating and $85 target. “The acquisition of Global Foundries would best meet Intel’s core competencies goals, in our view.”

Rosenblatt Securities analyst Hans Mosesmann wrote that he would view a deal as “making sense as a way for Intel to achieve legacy scale, and a way for the company to entice subsidies from western countries.” He doesn’t expect that such a deal would have any impact on leading-edge manufacturers like Advanced Micro Devices Inc.
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Mosesmann has a sell rating on Intel’s stock.

Intel’s stock has declined nearly 6% over the past 12 months, while AMD shares have soared 57%. In comparison, the PHLX Semiconductor Index
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has climbed 55% and the Dow Jones Industrial Average
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-0.43%
has rallied 30%.



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