Intel to acquire Tower Semiconductor for $5.4B to build on custom foundry strategy

When Intel CEO Pat Gelsinger announced the company’s foundry strategy last March, he dubbed it IDM (integrated device manufacturing) 2.0. At the time, the company announced the first part of that approach with a $20 billion investment to build two new fabs in Arizona. The company also announced plans to become a provider of foundry services for other chip makers.

Today, the company is building on that idea with the announcement that its plans to acquire Tower Semiconductor, a provider of custom foundry services, for $5.4 billion.

Gelsinger sees the move as a perfect fit for the company’s vision. “Tower’s specialty technology portfolio, geographic reach, deep customer relationships and services-first operations will help scale Intel’s foundry services and advance our goal of becoming a major provider of foundry capacity globally,” he said in a statement.

IDM 2.0 involves a three-pronged approach to semiconductor manufacturing: Intel’s network of global factories, use of third-party capacity and building out Intel Foundry Services, moving the company beyond simply producing Intel-branded chips, but helping meet the growing needs for custom chips.

Patrick Moorhead, founder and principal analyst at Moor Insight & Strategies, says those custom chips are the key to this deal. “Intel’s acquisition means that it can now manufacture the type of silicon it never could before. Specifically this means RF, sensors, silicon photonics and power management chips,” he said.

Dylan Patel, chief analyst at SemiAnalysis, a firm that tracks the semiconductor industry, agrees, saying that acquiring Tower is a smart move for the company. “The acquisition of Tower Semiconductor plugs much needed gaps in Intel’s foundry offerings on the basis of types of process nodes. It gives them teams who have been profitably running specialty technologies that interface with multiple external clients in a successful manner,” Patel told me.

He added that Intel had been mostly using flows that were custom tailored to their internal needs. Tower gives them a way to offer more standardized flows. “As Intel tries to adopt more industry standard flows, [product design kit (PDK)] capabilities are an area they need a lot of help with. Tower’s capabilities in specialty niche technologies really boost their ability to create and offer flexible and extensible PDKs,” he said.

As you would expect, Tower CEO Russell Ellwanger sees the two companies coming together as a force multiplier. “Together with Intel, we will drive new and meaningful growth opportunities and offer even greater value to our customers through a full suite of technology solutions and nodes and a greatly expanded global manufacturing footprint,” he said in a statement.

The deal has been approved by both company’s boards, but has to move through normal regulatory approval channels, as well as passing muster with Tower stockholders. That process is expected to take approximately 12 months to complete.