Intel buys Tower Semiconductor to expand fab business

Has manufacturing facilities in Israel, US, Japan and Italy

Intel has confirmed its plans to spend $5.4bn to acquire Israeli chip firm Tower Semiconductor as part of its scheme to expand and diversify its chip manufacturing business.

The US chipmaker announced it has entered into a definitive agreement to acquire Tower Semiconductor, which specialises in manufacturing high-value analogue semiconductor components for more than 300 customers worldwide. The firm serves markets such as automotive, medical, industrial, consumer, and aerospace and defence.

The transaction is expected to close in approximately a year. It has been unanimously approved by the boards of directors of both Intel and Tower, the two firms stated.

Intel said the deal is a "highly complementary transaction" that brings together its own expertise in scale manufacturing with Tower Semiconductor's specialty technologies. Under the terms of the deal, Intel will acquire Tower for $53 per share in cash, which values the company at approximately $5.4bn.

Intel also said that the acquisition will speed up the company's path to becoming a major provider of foundry services and capacity globally, adding that Tower Semiconductor would allow it to offer one of the industry's broadest portfolios of differentiated technology.

The chip giant hinted the move would allow Intel to address the booming demand for semiconductors that has been seen as economies start to recover from the pandemic.

"This deal will enable Intel to offer a compelling breadth of leading-edge nodes and differentiated specialty technologies on mature nodes – unlocking new opportunities for existing and future customers in an era of unprecedented demand for semiconductors," CEO Pat Gelsinger said in a statement.

The move is all a part of Intel's Integrated Device Manufacturing (IDM) 2.0 strategy, which Gelsinger unveiled last year as part of a plan to revitalise the chipmaker's fortunes. IDM comprised plans for significant manufacturing expansion, starting with an estimated $20bn investment for two new fabrication plants in Arizona. He also floated plans for Intel become a major provider of foundry capacity in the US and Europe to serve customers globally.

As part of the latter ambition, Intel established Intel Foundry Services (IFS) in March 2021. This currently offers process and packaging technology, with capacity in the other geographies beyond the US and Europe planned, plus what Intel describes as a broad intellectual property (IP) portfolio.

Intel also committed $20bn to build semiconductor plants in Ohio, and reports last year indicated that the firm was pursuing a $30bn acquisition for chip manufacturing operation GlobalFoundries, but the latter instead went public with an IPO on the Nasdaq stock exchange.

Who benefits? Tower currently has no controlling shareholder, and is backed by several big institutional investors from the United States and Israel. Tower Holdings' institutional holdings at the end of 2021 indicated that the largest shareholder was Wellington Management Group from the US.

The firm said it owns two manufacturing facilities in Israel (150mm and 200mm), two in the US (200mm), and three in Japan (two 200mm and one 300mm), which it owns through its 51 per cent holdings in TPSCo and also shares a "300mm manufacturing facility being established in Italy with ST Microelectronics."

According to Richard Gordon, VP for Semiconductors & Electronics at analyst Gartner, the latest move makes sense because Tower is not too big an operation for Intel to swallow, and Intel already has a long history and presence in Israel. "The timing is right; the foundry capacity is tight and therefore there is no shortage of customers and finished wafer prices are healthy," he told The Register.

Gordon said that Intel's motivation for this and the entire IDM 2.0 strategy is that the firm's traditional market for high performance microprocessor chips is becoming more saturated, more competitive and hence lower growth so the chip giant needs to diversify its business.

"Future market growth is going to come from more-specialised high-performance processors (such as in AI) rather than general purpose x86," he said.

The foundry services business is highly concentrated and hugely capital intensive. It is already largely dominated by TSMC, Samsung, and GlobalFoundries. Nevertheless, Intel is "well placed as a manufacturing powerhouse with deep pockets to enter this market and compete with the top tier," Gordon claimed. ®