Intel Close to Buying Tower Semiconductor

[Portland]

There's a lot of people losing sleep because tower has access to 7nm, 10 nm, and other tech. Public doesn't really care about business-to-business companies but this will cause disruptions in people's lives. If I could buy stock in tower after the merger I would.

 

[hist78]

My opinion: you might compare orange to apple. Specialty technology might work on 150/200mm or mature 300mm wafer fab. The ASP could be much lower than leading edge technology, but the margin will be higher. It should be higher than the current margin of intel 7.

I agree with you that Tower's real ASP may be much lower. I attempted to use public available data to show Tower's ASP is not in the same camp of Intel. Only Intel and Tower Semiconductor can answer the question about Tower's actual ASP and the number of wafer/chip it produced. Hope some analysts will ask Tower Semi tomorrow during their earnings conference call.

I don't know what Intel 7 current profit margin is and I don't think Intel will reveal such detail information down to process node level. On the other hand we do know how Tower Semiconductor performed in the past. Using their third quarter 2021 financial data as an example (Tower Semiconductor will release 2021 full year result tomorrow February 17, 2022) :

Tower Semiconductor Third Quarter of 2021 Results:

Revenue: $387 million
Gross profit: $85 million
Operating profit: $44 million
Net profit: $39 million

TSEM Gross profit margin: 21.96% (Intel 55.4% 2021)
TSEM Operating profit margin: 11.37% (Intel 24.6% 2021)
TSEM Net profit margin: 10.08% (Intel 25.19% 2021)

Tower Semiconductor (TSEM) is not a startup and has been doing business in the mature/specialty field for many years. I think many financial analysts treat buying TSEM as a "What You See Is What You Get" case. With such big difference in profitability, they are asking if TSEM a good fit for Intel's business model.

Everything in Intel from R&D, manufacturing, market and product selection, employee compensation, pricing, financial operations to dividends are built on the foundation of high volume, high price, and high profit margin business model.

Is this $5.4 billion acquisition worth it?

 

[hist78]

There's a lot of people losing sleep because tower has access to 7nm, 10 nm, and other tech. Public doesn't really care about business-to-business companies but this will cause disruptions in people's lives. If I could buy stock in tower after the merger I would.

"There's a lot of people losing sleep because tower has access to 7nm, 10 nm"

Can you please elaborate it a little bit?

 

[smeyer0028]

I think at least some of Tower business is high margin military
chips. Maybe Intel wants to get the goverment to give them a
monopoly again the way government funded semitech (fmaybe not
right name) did in the 1980s. Building a fab in Ohio may be part
of it.

 

[ChrisGar]

I think at least some of Tower business is high margin military
chips. Maybe Intel wants to get the goverment to give them a
monopoly again the way government funded semitech (fmaybe not
right name) did in the 1980s. Building a fab in Ohio may be part
of it.

Semiconductor companies who are able/approved to provide military components to US should have a big advantage in the upcoming CHIPS act. I'm not sure the US should provide big tax advantages to any company willing to build a semi fab in US. But if they are able to supply to US gov/military -- that is different. I doubt if Samsung ... or even TSMC ... would be the focus for military IC spending as long as there are other US-based competitive options.

In general, I think Tower was "Plan B" for Intel. It gives Intel a bunch of foundry customers (20?) that they would have had no access to without some type of acquisition otherwise. (clearly lower margins than Intel is used to -- that won't change). GF was probably their first choice -- but they are really expensive now. GF would have given Intel access to customers who want a "boutique foundry" ... plus some Automotive & CMOS customers who are OK with 14nm bulk CMOS ... and SOI/Dresden technology. (22nm)

This acquisition shows Intel is much more serious about being a real foundry than their failed attempts in the past. (where their approach was "here is the process we used for CPUs 4 years ago ... use it ... sorry we don't have all the types of IP you want ... and pay us a premium.")

 

[Daniel Nenni]

Tower Semi Buyout Tips Intel’s Hand - Semiwiki

The rationale behind the Tower Semi acquisition and things to watch out for at Intel's investor day. Intel bids for Tower Semi First I have to quote myself because Tower was an error of omission. In November in a piece that was likely too long for its own good, I mentioned that trailing edge fabs…

semiwiki.com

 

[Daniel Nenni]

Intel buys Tower – Best way to become foundry is to buy one - Semiwiki

-Intel jumpstarts foundry model with Tower semi buy @$54B Gets complementary tech to round out offerings -Approval based on satisfying China's needs as well -Margin concerns overblown- Will it be allowed to flourish? Intel pays up to get foundry and technology.... Intel announced a $5.4B...

semiwiki.com

 

[hist78]

Semiconductor companies who are able/approved to provide military components to US should have a big advantage in the upcoming CHIPS act. I'm not sure the US should provide big tax advantages to any company willing to build a semi fab in US. But if they are able to supply to US gov/military -- that is different. I doubt if Samsung ... or even TSMC ... would be the focus for military IC spending as long as there are other US-based competitive options.

In general, I think Tower was "Plan B" for Intel. It gives Intel a bunch of foundry customers (20?) that they would have had no access to without some type of acquisition otherwise. (clearly lower margins than Intel is used to -- that won't change). GF was probably their first choice -- but they are really expensive now. GF would have given Intel access to customers who want a "boutique foundry" ... plus some Automotive & CMOS customers who are OK with 14nm bulk CMOS ... and SOI/Dresden technology. (22nm)

This acquisition shows Intel is much more serious about being a real foundry than their failed attempts in the past. (where their approach was "here is the process we used for CPUs 4 years ago ... use it ... sorry we don't have all the types of IP you want ... and pay us a premium.")

For many years TSMC has been directly or indirectly involved in US defense and national security related projects. TSMC was convinced, attracted, encouraged, or forced to setup a fab in Arizona to address those needs. Part of budget under CHIPS act is reserved for TSMC Arizona Fab.

People might not be aware that many US military or national security related chips are actually not made in US or at those DoD Trusted Foundry sites.

 

[Portland]

"There's a lot of people losing sleep because tower has access to 7nm, 10 nm"

Can you please elaborate it a little bit?

There are industrial manufacturers of automated equipment that use tower that I will buy stock from. It's a gap of haves and have nots.

 

[hist78]

There are industrial manufacturers of automated equipment that use tower that I will buy stock from. It's a gap of haves and have nots.

Are you saying those Tower Semiconductor customers are worried about Intel's acquisition? Is it because Intel may try to push them to use higher cost/more advanced nodes to generate higher margin for Intel?

TSEM 3rd Quarter 2021:

TSEM Gross profit margin: 21.96% (Intel 55.4% 2021)

TSEM Operating profit margin: 11.37% (Intel 24.6% 2021)

TSEM Net profit margin: 10.08% (Intel 25.19% 2021)

 

[Portland]

Are you saying those Tower Semiconductor customers are worried about Intel's acquisition? Is it because Intel may try to push them to use higher cost/more advanced nodes to generate higher margin for Intel?

In the industrial manufacturing sector this is a huge deal. Better sensors and analog equipment means faster production, better quality, and less raw materials; and most importantly more sales.

I will be buying stock in automated industrial manufacturers that use semiconductors over mechanical processes.

 

[hist78]

Tower Semiconductor (TSEM) announced 2021 full year earnings

2021 revenue:

Revenue for the full year of 2021 was $1.508 billion, as compared to $1.266 billion in 2020, reflecting 19% year over year revenue growth and 29% year over year organic revenue (as defined above) growth.

Gross profit for the full year of 2021 was $329 million, 41% higher than $233 million in 2020.

(My calculations: Gross profit margin is 21.82%).

Operating profit for the full year of 2021 was $167 million, 83% higher than the $91 million in 2020.

(My calculations: Operating profit margin is 11.07%).

Net profit for the full year of 2021 was $150 million, or $1.39 basic and $1.37 diluted earnings per share, 82% higher than the $82 million or $0.77 basic and $0.76 diluted earnings per share in 2020.

(My calculations: Net profit margin: 9.95%).​

https://ir.towersemi.com/news-releases/news-release-details/tower-semiconductor-reports-2021-fourth-quarter-and-full-year/