US-based Intel is buying Israeli chipmaker Tower Semiconductor for $5.4 billion, the companies said on Tuesday, giving it access to more specialised production and deepening its presence in a sector dominated by Taiwan’s TSMC.
Intel is paying $53 per share for Tower – which specialises in analogue chips used in cars, medical sensors and power management – well above Monday’s closing price of $33.13.
Tower’s shares jumped 42% in early trade in New York on Tuesday to $47.03, after surging in after-hours trade on Monday on news of a possible takeover.
Tower had a market value of $3.6 billion before the news. Intel shares were up over 1% by midday on Tuesday.
“Tower’s $1.5 billion of revenue is small, but the planned acquisition of Tower will accelerate Intel’s foundry ambitions,” said Richard Lane, senior vice-president for corporate finance at Moody’s rating agency in New York.
“This is a long game that will play out over many years,” he added.
The acquisition comes at a time when the global semiconductor shortage has hampered the production of everything from smartphones to cars.
Entering Foundry Business
Intel announced last year it would enter the foundry business, which produces chips that customers design, and analysts said at the time that a lack of deal targets could be a challenge.
Intel chief executive Pat Gelsinger said the two companies’ technologies were complementary, with the foundry market at $100 billion and expected to grow sharply over the rest of the decade.
Chips produced by Intel account for about 70% of this market, which includes mobile and automotive, he said, adding that the other 30% was served by companies like Tower.
The deal will help Intel acquire talent to develop its foundry business.
“To achieve more advanced and cost-effective manufacturing capabilities, which is critical in high volume and leading edge semiconductor designs, we expect Intel will invest more aggressively, with about $26 billion in capital expenditures over the next 12 months to add more capacity, primarily for its own chip production but also for foundry capacity,” Lane said.
Tower has been investing in Israel, Texas and Japan to boost capacity for 200 and 300 millimetre chips. It serves “fabless” companies – which design chips but outsource manufacturing – and integrated device manufacturers.
Tower, previously known as TowerJazz, has capacity for more than 2 million wafer starts a year. CEO Russell Elwanger said he expected to continue to have good relations with customers in China.
- Reuters, with additional editing by George Russell