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Intel Could Find a New World of Complications with GlobalFoundries

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Pat Gelsinger

is wasting no time putting his money where his mouth is.

The new

Intel Corp.

INTC 1.55%

chief executive has been formally on the job less than six months. And it has been barely three since he articulated the chipmaker’s new strategy, which includes a move back into the foundry business.

Intel had dabbled in making chips designed by others before, but Mr. Gelsinger described those efforts as halfhearted. With chip manufacturing at a premium given the continuing production shortage—and the federal government talking about showering billions in subsidies to boost the domestic industry —it seemed a good time for Intel to try again.

But Mr. Gelsinger is clearly thinking much bigger. The Wall Street Journal reported late Thursday that Intel is exploring a deal to buy GlobalFoundries, a U.S.-hubbed chip manufacturer owned by the Abu Dhabi government.

The deal could be worth around $30 billion, which would be Intel’s largest ever, and nearly twice what it paid for Altera, a maker of programmable logic chips that was—ironically—the only notable customer of Intel’s last foundry attempt.

Buying GlobalFoundries would give Intel a much bigger list of foundry clients. It could also bring a long list of complications, in that many of those clients are also Intel competitors. None more so than

Advanced Micro Devices,

which spun GlobalFoundries out of its own manufacturing operations in 2009.

AMD has come to rely much more on

Taiwan Semiconductor Manufacturing

of late, but it still has a recently amended agreement in place to purchase about $1.6 billion worth of wafers from GlobalFoundries by 2024.

That would put Intel in the position of making chips for the company that has successfully been eating into its share in the key personal computer and data center markets.

Another complication is that GlobalFoundries no longer works in the most advanced chip manufacturing processes that Intel has long specialized in. The cost of keeping up with giants like Intel, TSMC and

Samsung

forced GlobalFoundries to step away from its work on 7-nanometer production back in 2018 and focus on older processes often called “trailing edge” that are used to economically produce lower-priced chip products.

But the current production shortage has warmed up even that end of the market, as many key chips used in end products like cars are made on trailing-edge processes. And Intel’s political timing looks even better now, as the Senate passed a bill last month calling for $52 billion in funding to support domestic chip production.

A global chip shortage is affecting how quickly we can drive a car off the lot or buy a new laptop. WSJ visits a fabrication plant in Singapore to see the complex process of chip making and how one manufacturer is trying to overcome the shortage. Photo: Edwin Cheng for The Wall Street Journal

The prospect of a homegrown chip giant taking ownership of U.S.-based manufacturing operations currently owned by a foreign government may be one of the few easy sells in today’s Washington.

Whether Intel’s investors will buy it is another question. The stock has given back most of the gains it made following an initial surge of excitement at Mr. Gelsinger’s hiring. It has also slipped about 3% since the company announced late last month a one-quarter delay of its next big data-center processor.

That delay served as a reminder that Intel faces a host of complex problems even a talented leader can’t quickly fix. Buying GlobalFoundries won’t simplify that story any.

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