Intel gains more access to specialty chips with $7.3b Tower Semiconductor deal

JERUSALEM • Intel is buying Israeli chipmaker Tower Semiconductor for US$5.4 billion (S$7.3 billion), giving it access to more specialised production as it seeks to take advantage of soaring chip demand.

Intel is paying US$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 US$33.13.

Tower's shares jumped 42 per cent in early trade in New York on Tuesday to US$47.03, after surging in after-hours trade on Monday on news of a possible takeover. Tower had a market value of US$3.6 billion before the news. Intel was up over 1 per cent by midday Tuesday.

The deal deepens Intel's presence in a sector dominated by Taiwan-based TSMC, the world's largest chipmaker, at a time when the global chip shortage has hampered the production of everything from smartphones to cars.

"We think this makes a lot of sense. (Tower) is a foundry for trailing edge process technology that is likely to be tight for the next several years," said Northland Capital Markets' analyst Gus Richard.

A foundry business produces chips that customers design, and Intel announced last year it would enter that business.

Intel CEO Pat Gelsinger said Intel and Tower's technologies were complementary, with the foundry market at US$100 billion and expected to grow sharply over the rest of the decade.

Chips produced by Intel account for about 70 per cent of this market, which includes mobile and automotive, he said, adding that the other 30 per cent was served by companies like Tower.

The transaction, expected to close in about 12 months, is still subject to regulatory approvals, which Mr Gelsinger expected to be smooth. It also needs approval from Tower's shareholders.

Intel has had a large presence in Israel for nearly 50 years, with five sites. It is spending US$10 billion on a new chip plant in Israel that will have 6,000 employees, and another US$600 million to expand its research and development in the country.

Intel said it aims to fund the takeover of Tower with cash from its balance sheet. Once the deal is completed, Tower will be integrated into Intel Foundry Services, which Intel established a year ago.

REUTERS