Intel to Acquire Tower Semiconductor for $5.4 billion

Intel’s acquisitions of Israel based technology firms continues in 2022. Intel that is trying a great pivot to become a leader again in its domain is hoping Tower Semi gives it a stronger foothold in specialty technologies in which Tower Semiconductor works, like radio frequency and industrial sensors.

You can read its blog announcement of the deal here.

Intel continues to invest aggressively to keep up with companies that have overtaken it in execution in the hyper-competitive chip sector.

Intel understand geographical diversification with the move saying that Tower’s existing production facilities are “geographically complementary,” with a presence in the U.S. and Asia.

Intel has been working to meet the large global demand for chips, which has caused an ongoing shortage, in part by announcing in January an up to $100 billion investment in Ohio into what could become the world’s largest semiconductor production complex.

“Tower’s specialty technology portfolio, geographic reach, deep customer relationships and services-first operations will help scale Intel’s foundry services and advance our goal of becoming a major provider of foundry capacity globally,” said Pat Gelsinger, Intel CEO. “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.”

The chip sector has been fascinating to watch during a time when a massive chip-shortage and supply-demand issues are exasperated by breakdowns in supply-chains, shipping and the mismatch between supply and demand.

Gelsinger (pictured above), who took the CEO job a year ago, is betting he can compete with Taiwan Semiconductor Manufacturing Co. in the chip-foundry market -- the contract manufacturing of semiconductors for other companies. His comeback plan for Intel involves modernizing its factories and building new ones aimed at restoring its leadership in chip technology. 

Intel is certainly not considered a leader like it was in years past, given the evolution of TSMC, AMD and others.

Tower

• Tower’s expertise in specialty technologies, such as radio frequency (RF), power, silicon-germanium (SiGe) and industrial sensors, extensive IP and electronic design automation (EDA) partnerships, and established foundry footprint will provide broad coverage to both Intel and Tower’s customers globally.

• Tower serves high-growth markets such as mobile, automotive and power. Tower operates a geographically complementary foundry presence with facilities in the U.S. and Asia serving fabless companies as well as IDMs and offers more than 2 million wafer starts per year of capacity – including growth opportunities in Texas, Israel, Italy and Japan.

• Tower also brings a foundry-first customer approach with an industry-leading customer support portal and IP storefront, as well as design services and capabilities. 

Intel will pay $53 per share, exceeding Tower’s closing price of $33.13 on Monday. They expect the deal to close in about 12 months. That’s quite a premium.

The stock today February 15th, 2022 ticker $TSEM is up over 42% on the day on the news.

This is also a business diversification play for Intel into new areas as with Tower, Intel is acquiring customers and expertise.

The chip-foundry industry requires experience in handling different types of chips and designs. Intel has previously had little success in that area because of a lack of commitment to it, Gelsinger has said. Intel’s factories have historically produced only its own designs.

After the stock adjustment Tower is indeed worth $5.4 billion. This is also yet another showcase of the power of Israeli innovation. Intel’s 2017 Mobileye acquisition was over $15 billion and really put Israel on the map in high-tech at another level. In December, 2021 Intel announced its plan to spin-out Mobileye in its own IPO.

Mobileye makes safety systems for a number of automakers and aspires to launch its own robotaxi business. I consider it among the leaders in its space on part with the likes of GM cruise, if not more advanced in certain respects.

Tower is a small buy but a very strategic acquisition for Intel. Tower makes power management chips, image sensors and a variety of other semiconductors. Its customers include Analog Devices Inc. and Broadcom Inc., according to data compiled by Bloomberg. 

Intel which has lagged leaders in recent years really is going big in its attempts to stay relevant. Think about it, Intel is the only leading-edge player with both research and development and manufacturing in the U.S., including recently announced capacity expansions in Arizona and New Mexico, as well as plans to build a new mega-site in Ohio. This can create a lot of American high-tech jobs and could be very good for Ohio in particular.

Taiwan’s TSMC could be one of the main reasons China eventually wants to conquer the independent territory. What the move doesn’t provide is scale. Tower had annual sales of about US$1.3 billion last year, a fraction of TSMC’s US$56 billion. In the chip shortage, TSMC has really thrived even as tech leaders in the space like AMD have improved their trajectory.

In February, 2022 Intel has a market cap of $196.5 Billion and revenue approaching $80 Billion. It’s trading at a P/E ratio of just 10 in a market where valuations have blown up well above historical norms.

The new breed of chip companies such as Nvidia, AMD and TSMC have really realistically left Intel in the dust. TSMC’s sales are expected to grow about 27 per cent in 2022. The Taiwan Hsinchu-based company, which pioneered the market, accounts for more than 50 per cent of industry revenue and makes chips for many of Intel’s key rivals, a list that includes Advanced Micro Devices Inc. and Nvidia Corp. 

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