Intel has agreed to acquire Israel Tower Semiconductor Ltd. for $5.4 billion as a move to outsource its chip manufacturing business.
Reported by Bloomberg on Tuesday (15/2/2022), the decision has been approved by the board of directors. The plan is to sign the agreement in the next 12 months.
Tower shares were up 43 percent in premarket trading in Tel Aviv on Tuesday. Meanwhile, Intel edged up 1 percent in New York.
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Intel CEO Patrick P. Gelsinger is betting on competition with Taiwan Semiconductor Manufacturing Co., in producing chips for other companies.
The return of Gelsinger, who after a 30-year career at Intel Corp, began with factory modernization and building a new factory with the aim of restoring his leadership in chip technology.
By collaborating with Tower, Intel can acquire its customers and talents. For Intel, the chip foundry industry requires experience in handling various types of chips and designs.
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“This is a major investment cycle for us as a company. This is the most appropriate for Intel, at this time is the most critical for our industry and our nation,” Gelsinger said in an earnings report last month.
Intel had previously been less successful in that area due to a lack of commitment to it, Gelsinger said. Intel factories have historically produced only their own designs.
As such, Tower provides strengths in power management, image sensors, and other types of semiconductor businesses. Currently, Tower’s customers include Analog Devices Inc., and Broadcom Inc., in the United States.
However, the scale of the Tower is still far compared to TSMC. Tower sales last year reached US$1.3 billion, while TSMC’s reached US$56 billion.
Analysts expect TSMC’s sales to grow about 27 percent by 2022. The Hsinchu-based company accounts for more than 50 percent of the industry’s revenue. Tower has also produced chips for Intel competitors such as Advanced Micro Devices Inc., and Nvidia Corp.
The deal with Tower was only part of Gelsinger’s plan to get Intel back on track. He has also initiated the construction of a US$20 billion plant in Ohio and a new production facility in Europe.
However, the company’s earnings missed analyst projections last quarter, disappointing investors. However, Intel believes profit margins will return to historically high levels in five years.
Gelsinger is also seeking government funding for the construction of factories in the US and Europe because too many industries have moved to Asia.
