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Intel abandons $5 billion deal it had hoped would boost Foundry business

"Modestly disappointing for the prospects of Intel’s foundry efforts… [which were] never going to be easy even with Tower, but now may prove to be even more challenging without.”

Intel Tower Semiconductors

Intel has walked away from a planned $5.4 billion deal for Israel’s Tower Semiconductor after it failed to gain regulatory approval from China.

Tower Semiconductor runs six manufacturing facilities in Israel, Japan, and the United States. It specialises in analog chips for clients.

The acquisition, announced in February 2022, had been welcomed by Intel as accelerating its “path to becoming a major provider of foundry services and capacity globally” as it looks to compete with TSMC.

Decision to end the acquisition was mutual, the two said. Investors had already priced in the deal not happening and Tower’s share price has since fallen significantly below the $53 a share that Intel had offered.

See also: Intel to treat semiconductor manufacturing like a separate business to "expose true economics", cut $10 billion

Bernstein analyst Stacy Rasgon said in a research note today that a failed deal “does seem modestly disappointing for the prospects of Intel’s foundry efforts… [which were] never going to be easy even with Tower, but now may prove to be even more challenging without.”

Intel CEO Pat Gelsinger had welcomed the deal last year as enabling it to “offer a compelling breadth of leading-edge nodes and differentiated specialty technologies on mature nodes – unlocking new opportunities for existing and future customers in an era of unprecedented demand.”

On July 26, Tower Semiconductor reported Q2 revenues of of $357 million, down sharply from $426 million for the same period in 2022.

The company describes itself as offering “customizable process platforms such as SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensor, non-imaging sensors, integrated power management, and MEMS…"

It also offers "world-class design enablement for a quick and accurate design cycle as well as process transfer services including development, transfer, and optimization, to IDMs and fabless companies.”

Customers include companies in the automotive, industrial and consumer segments and the company has a strong position in components for power management as well as growing ambitions in 5G.

Russell Ellwanger, Tower Semiconductor CEO, commented on the news:, "Tower was very excited to join Intel to enable Pat Gelsinger’s vision for Intel’s foundry business. We appreciate the efforts by all parties. During the past 18 months, we’ve made significant technological, operational, and business advancements.

“We are well positioned to continue to drive our strategic priorities and short-, mid- and long-term tactics with a continued focus on top and bottom-line growth” he added in a canned statement on August 16.

Intel established its Intel Foundry Services (IFS) in March 2021 with the aim of becoming a “major provider” of US and Europe-based foundry capacity. Backed by the US Department of Defense under a programme called “RAMP-C” it has signed up Boeing and Northrop Grumman as customers along with IBM, Microsoft and NVIDIA who will be using Intel’s forthcoming 18A semiconductor manufacturing process.

On July 27 Intel reported IFS revenue of $232 million, up 4x year over year, but the segment’s operating loss was $143 million on what executives described as “higher factory start-up costs.”

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