Intel wants to get into a field largely dominated by TSMC, and has taken a very important step to achieve it. We speak, of course, of the manufacture of chips for third parties. The US company announced that it will buy Tower Semiconductor, an Israeli firm surely unknown to most, in exchange for 5.4 billion dollars.
According to Bloomberg, the transaction has already received the approval of the directors of both companies. Intel will pay $53 in cash for each share, and the deal is expected to be completed in about a year. With this acquisition, Californians are making a very strong bet to expand their presence in the foundry sector; after all, Tower Semiconductor has a very high strategic importance, both for its technology and for its client portfolio.
It's clear that if Intel is really going to take on TSMC in a territory where Taiwanese are almost ubiquitous, it needs to cut corners. And this purchase is just that, jump several squares in one jump to try to get results in the shortest possible time. Of course, this will not happen overnight, but it can be aligned with the plan of Pat Gelsinger, the CEO of the North Americans, to regain prominence in chip production by 2025.
What is known about Tower Semiconductor?
As we mentioned at the beginning, it is likely that not many know about Tower Semiconductor. However, the fact that its name is not as mainstream as that of other brands is not synonymous with a lack of experience or little presence in the market. On the contrary, the company has been working in the semiconductor sector for almost three decades.
The new Intel company began operations in Israel in 1993, and has factories installed in different parts of the world. Two of them are in their country of origin, while many others operate in the United States, one in San Antonio (Texas) and the other in Newport Beach (California). It also has three facilities in Japan that it operates under the TPSCo holding company, together with Nuvoton Technology, and is currently working with ST Microelectronics to establish a factory in Italy.
Its many clients include Intel itself, Broadcom and Panasonic, just to mention a few.
But the key to understanding why Intel will shell out $5.4 billion for Tower Semiconductor is its versatility. The Israeli company has experience in an area that has historically been of little or no interest to Americans: adapting its processes to different types of chips and technologies. Intel has always focused on developing its own hardware, and that approach will do little or nothing for it as a third-party vendor.
Tower Semiconductor has manufactured integrated circuits with technologies such as BiCMOS and silicon-germanium (SiGe), and has also worked with CMOS image sensors, non-volatile memories, and power management chips, among other developments.
Intel expands its plan to provide chips to third parties
As we mentioned earlier, Intel's purchase of Tower Semiconductor seems a very smart way to cut corners in its plan to compete against TSMC. Let us remember that the US firm announced last year its plan to manufacture chips for third parties, in a very ambitious strategy that involved an investment estimated at 20 billion dollars.
The initiative led by Pat Gelsinger had three legs, one of them being the production of hardware for other companies. In fact, Intel had announced the construction of new factories in the United States, as well as the formation of alliances with IBM, Microsoft and Cisco, among others. And some of that began to be seen a few months later, when the agreement through which it would start manufacturing chips for Qualcomm was confirmed.
To all this we must also add the European expansion that Intel has also decided to face. The company announced in September of last year that it would invest 80 billion euros to install new factories in Europe, to cut dependency on Asia and target the automakers in particular.
Will it be enough to overshadow TSMC?
TSMC today plays on another level, and it is unrealistic to think that Intel will be able to steal too much space from it in the market in the short term. However, the experience of Tower Semiconductor combined with the economic capacity of the Americans can pay off fairly quickly. After all, Intel has an availability of resources that would allow it to scale the Israeli business, especially with a strong investment in research and development.
In any case, it would be rare to see the real results of this Intel gamble less than five years from now. Bloomberg indicates that TSMC's sales during 2021 were 56 billion dollars —against $1.3 billion for Tower Semiconductor—, and they are expected to increase 27% this year.
“This agreement will allow Intel to offer a compelling array of leading-edge nodes and differentiated specialty technologies across mature nodes, unlocking new opportunities for current and future customers in an era of unprecedented demand for semiconductors,” said Pat Gelsinger.
