Intel’s $5.4 Billion Acquisition of Tower Semiconductor Could Fail

Intel’s $5.4 Billion Acquisition of Tower Semiconductor Could Fail as Chinese Approval Remains Pending

Intel’s $5.4 Billion Acquisition of Tower Semiconductor Could Fail as Chinese Approval Remains Pending.

As of the August 15th deadline, Intel’s $5.4 billion acquisition deal with Tower Semiconductor, an Israeli analog semiconductor solutions manufacturer, has reached its conclusion point.

However, at the time of writing, the transaction has not received approval from Chinese regulatory authorities. If the two parties involved do not extend the transaction timeline further, the deal is at risk of collapsing.

The acquisition agreement was initially announced on February 15, 2022, when Intel revealed its intention to acquire Tower Semiconductor.

According to the agreement, Intel planned to purchase Tower Semiconductor at a cash price of $53 per share, resulting in a total transaction value of approximately $5.4 billion.

Intel stated that this acquisition strongly aligned with its IDM 2.0 strategy, aimed at expanding manufacturing capacity, global presence, and technological portfolio to meet unprecedented industry demands

. Moreover, the deal was projected to immediately enhance Intel’s non-GAAP earnings per share (EPS). Funding for this acquisition was planned to come from the cash reserves on Intel’s balance sheet.

Prior to the completion of the deal, Intel’s Foundry Services division (IFS) and Tower Semiconductor were to operate independently. During this period, IFS was to be led by Thakur, while Tower Semiconductor would continue under the leadership of Ellwanger. After the deal’s closure, Intel aimed to integrate these two organizations into a fully consolidated foundry business.

Although the deal had received unanimous approval from the Intel and Tower Semiconductor boards at the time of announcement, it required approval from Tower Semiconductor shareholders (which was obtained by the end of April 2022), customary closing conditions, and regulatory approval from relevant countries. The original expectation was for the deal to be completed within about 12 months, by February 15, 2023.

However, due to the lack of approval from China’s State Administration for Market Regulation (SAMR) by February 15, 2023, Intel and Tower Semiconductor announced extensions to the transaction timeline, first until June 15, and then further extended to August 15. As of now, the SAMR has not officially approved the deal.

If the deal between Intel and Tower Semiconductor still lacks SAMR approval today, the two parties will be compelled to extend the transaction timeline once again or consider canceling the deal altogether.

Moreover, even if Intel and Tower Semiconductor were to announce another extension, they would still face the challenge of not securing approval from China’s State Administration for Market Regulation in the foreseeable future.

Furthermore, in jurisdictions where approval has been granted, antitrust regulators might require the completion of the merger and acquisition within a specific timeframe. Continuously extending the timeline could introduce additional risks during this period, potentially leading to the need for reevaluation.

Reportedly, in mid-April of this year, Intel CEO Pat Gelsinger visited China, with one of the crucial objectives being to facilitate the approval of Intel’s acquisition of Tower Semiconductor by Chinese regulatory bodies.

Acquiring Tower Semiconductor: A Pivotal Aspect of IDM 2.0 Strategy

For Intel CEO Pat Gelsinger, the successful acquisition of Tower Semiconductor is a pivotal element in realizing the “IDM 2.0 strategy.”

As early as March 2021, after assuming the role of Intel CEO, Gelsinger unveiled the “IDM 2.0 strategy,” with the aim of reclaiming Intel’s leadership in process technology, enhancing global manufacturing capabilities, and revitalizing wafer fabrication (“fabs”), which entailed competing with industry leader TSMC.

The acquisition of Tower Semiconductor represents a crucial move to rapidly elevate Intel’s influence in the wafer fabrication market.

Established in 1993, Tower Semiconductor, also known as TowerJazz, went public on the NASDAQ and Tel Aviv Stock Exchanges in 1994. The company specializes in manufacturing analog chips, CMOS technology, discrete devices, and MEMS products, serving various sectors including automotive, mobile, medical, industrial, and aerospace.

Presently, Tower Semiconductor possesses a 6-inch fab (processing technology ranging from 1 micron to 0.35 microns) and an 8-inch fab (processing technology from 0.18 microns to 0.13 microns) in Israel, along with 8-inch fabs in California and Texas offering 0.18-micron technology (Texas fab) and 0.18 to 0.13-micron technology (California fab) services.

The company’s annual revenue stands at around $1.3 billion, and while its scale is not massive, it holds a leading position in specialty processes. It ranks first in analog chip manufacturing and provides expertise in RF (radio frequency) and high-performance analog circuitry, supporting high-speed, low-power products for consumer electronics, industrial applications, and automotive electronics.

TrendForce data indicates that Tower Semiconductor holds a 1.3% market share in the global wafer fabrication market for Q1 2023, ranking as the seventh-largest player.

In other words, a successful acquisition by Intel would position it as the seventh-largest wafer fabrication company globally and offer an opportunity to challenge the sixth-ranked Hua Hong Group.

Furthermore, to bolster the development of its wafer fabrication business, Intel announced on June 22 that its Manufacturing and Operations group, including existing IDM manufacturing and Foundry Services (IFS), would operate independently to generate profit.

Under this new “internal foundry” model, Intel’s product business units would collaborate with the Manufacturing and Operations group in a manner similar to external fabless semiconductor companies and foundries.

Specifically, in this new internal foundry operational model, Intel’s manufacturing division would be responsible for its independent profit and loss (P&L) for the first time. Starting from the first quarter of the 2024 fiscal year, Intel’s reported financial statements would include a new manufacturing division, encompassing manufacturing, technology development, and IFS.

Intel stated that this new model presents inherent business value with potential cost savings in the billions. It would extend market-based pricing to its internal business units, providing them with the same predictability and stability as external customers. The close connection between its product teams and technology development would be maintained, preserving its competitive edge as an IDM.

This new model also positions Intel’s IFS to become the second-largest foundry in the industry (based on the production volume of internal customers), allowing external customers to leverage Intel’s scale and reducing process risks.

In simpler terms, Intel aims to transform its manufacturing operations from a traditional IDM into two separate, independent entities—one for chip design and another for chip fabrication. This would turn its manufacturing into a pure “foundry business,” with Intel’s chip design unit becoming the primary customer of the newly independent foundry unit.

This move would directly position Intel’s independent foundry division as the world’s second-largest wafer fabrication company.

Notably, in early March of this year, Intel revealed that its most advanced Intel 20A and Intel 18A processes had successfully taped out, meaning they had finalized design specifications, materials, and performance targets.

Additionally, Intel’s IFS had 43 potential partners testing chips, including at least 7 from the global top 10 chip customers.

Subsequently, in July this year, Intel announced Boeing and Northrop Grumman as customers for its semiconductor foundry business. Simultaneously, Intel also revealed a collaboration with Swedish telecommunications equipment manufacturer Ericsson, utilizing its Intel 18A process to manufacture custom 5G System-on-Chips (SoCs) for Ericsson.

According to Intel’s financial report, the second quarter of this year saw a revenue of $232 million from Intel’s semiconductor foundry business, marking a remarkable 307% year-on-year increase.