The Intel boss wants to build up another business area as a contract manufacturer with the chip group.
(Photo: Bloomberg)
Munich Billion deal in the chip industry: The US group Intel buys the Israeli contract manufacturer Tower Semiconductor for 5.4 billion dollars. The transaction will help turn Intel into a “major global provider of foundry capabilities,” CEO Pat Gelsinger said on Tuesday.
The engineer is thus leading Intel into an area that the company has previously neglected: the foundries. These are chip companies that produce on behalf of other suppliers. The capacities in these foundries are scarce worldwide, delivery times of one year and more are not uncommon.
This is good news for European industry, which is suffering from chip shortages. Because a financially strong competitor is emerging outside of Asia. So far, TSMC from Taiwan and Samsung from South Korea have dominated the business.
In addition, Intel will be able to offer a wide range of manufacturing processes in the future. Intel’s core business is the most advanced technologies, which are mainly used to produce chips for computers and smartphones. Processors are the “brains” of the devices that perform the calculations that run in the background of all functions.
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With Tower, Intel is now adding capacities for the production of more mature chip generations to its portfolio. Although these do not deliver top performance, they are proven and usually easier to produce and are therefore often used for automotive and industrial applications. The European manufacturers Infineon, NXP and STMicroelectronics in particular are in high demand. With the tower acquisition, these customers now have a larger selection of foundries, explained Intel boss Gelsinger.
Intel opens up new customers and know-how
With the takeover, Intel will gain new know-how and access to new customers. However, Tower is comparatively small with a turnover of 1.3 billion dollars most recently. The world’s largest contract manufacturer, TSMC, achieved sales of 56 billion dollars last year. Internally, too, Tower is of little consequence: last year, Intel posted sales of 79 billion dollars.
>> Read here: Chip manufacturer STMicroelectronics: “We are in permanent emergency mode”
Rather, Tower is strategically extremely important for Intel. Because in recent years, TSMC has technologically passed Intel. Intel’s most important competitors get their chips from the Taiwanese, above all AMD and Nvidia. Rivals grew big in 2021, while Intel had to settle for a 1% increase in revenue. The profit has even shrunk slightly compared to the previous year.
CEO Gelsinger wants to counteract the trend and now open up an independent, new business field with contract manufacturing. The 60-year-old has been in office for a year. He wants to revive the former chip industry leader Intel. “We have to rebuild an iconic company that has not performed as well as it needs in the last ten years,” the manager recently told the Handelsblatt.
>> Read here: The red pencil’s revenge: Infineon pays a high price for its thriftiness
In order to get back to the top technologically, Gelsinger is investing more than any Intel boss before him in the more than 50-year history of the Silicon Valley company. Intel is expanding an existing site in New Mexico, and new factories are being built in Arizona and Ohio, as well as in Malaysia.
The processor group takes over Tower Semiconductor from Israel.
(Photo: Reuters)
Tower is now Gelsinger’s first acquisition. Last year he had already invested 20 billion dollars in machines and plants, in 2022 it should be 28 billion. For comparison: TSMC plans investments of at least 40 billion dollars for this year.
Experts see Gelsinger on the right track: the strategy is logical, says Peter Fintl, chip specialist at the consulting firm Capgemini. The path to becoming a contract manufacturer can only be good for customers in Europe, as it makes them less dependent on foundries in the Far East.
Intel wants billions in subsidies in Europe
The step is important for Gelsinger for another reason. As a contract manufacturer, it should be easier for him to get billions in subsidies in Europe. Because he can present himself as the savior of the European chip industry and its customers.
The head of the world’s second largest chip company has been negotiating billions in subsidies for new plants with the EU Commission and national governments for almost a year. As a first step, Gelsinger wants to set up two chip factories in Europe, a research site and factories for testing and packaging the semiconductors. Because it is 30 to 40 percent more expensive to build a chip factory in Europe than in Asia, Gelsinger demands high subsidies.
Tower’s share price shot up on the Nasdaq premarket Tuesday by almost half to around $48. Intel’s stock rose 1 percent. Intel offers 53 dollars per tower share and wants to complete the transaction within a year.
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