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After acquisition deal is called off, Intel to provide foundry services to Tower

Chip giant Intel announced on Tuesday that it will provide foundry services to Tower Semiconductor to help the Israel, Migdal HaEmek-based firm meet global customer demand for next-generation chips.

The deal comes less than a month after Intel backed out of a $5.4 billion deal to buy the Israeli chipmaker. Under the terms of the agreement, Intel Foundry Services (IFS) — a standalone business unit tasked with becoming a major provider of US- and European-based semiconductor manufacturing capacity to global customers — will offer foundry or chip manufacturing services, for 300mm silicon-based wafers to Tower.

As part of the partnership deal, Tower will use Intel’s manufacturing plant in New Mexico and invest up to $300 million to purchase and own equipment and other fixed assets that will be installed at the facility. The deal will provide Tower with a “new capacity corridor of over 600,000 photo layers per month” to meet expected customer demand for 300mm advanced analog processing, the Israeli company said.

Back in August, the merger deal between the two companies fell through after Intel failed to secure a go-ahead from regulators in China, where the chipmaker also has operations. With the acquisition of the Israeli chip and semiconductor manufacturer, Intel sought to expand its production capacity to address “unprecedented” industry demand. The deal would have marked Intel’s sixth acquisition of an Israeli company over the past half a decade.

Many chipmakers have been seeking to diversify their supply chains to prevent the disruptions caused by pandemic lockdowns and other unexpected events, especially in Asia, which dominates global chip production. In recent years, Intel announced plans to spend $20 billion to build two new manufacturing factories (fabs) in Arizona and another $20 billion for plants in Ohio and New Mexico to boost manufacturing and build chips for competitors.

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Tower (formerly known as TowerJazz) was first founded in 1993 and went public on the Nasdaq in 1994. For nearly 30 years, Tower has been manufacturing analog semiconductor chips for the consumer, industrial, automotive, mobile, infrastructure, medical, aerospace and defense sectors. The company has factories in San Antonio, Texas, Newport Beach, California, and in Japan and Israel. In 2021, Tower joined forces with European semiconductor STMicroelectronics to share an Italian silicon wafer factory.

Intel Corp.’s R&D center in Haifa. (Courtesy)

Commenting on the new partnership deal, Tower CEO Russell Ellwanger said he is “excited” to continue working together with Intel.

“We see this as a first step towards multiple unique synergistic solutions with Intel,” Ellwanger remarked. “This collaboration with Intel allows us to fulfill our customers’ demand roadmaps, with a particular focus on advanced power management and radio frequency silicon on insulator (RF SOI) solutions, with full process flow qualification planned in 2024.”

Intel employs almost 12,000 employees at its three Israeli R&D centers — in Haifa, Petah Tikva, and Jerusalem — as well as at its manufacturing plant in Kiryat Gat, south of Tel Aviv. The company says it is currently responsible for creating indirect employment positions for approximately 42,000 workers in Israel.

Intel Israel in 2022 posted record exports of $8.7 billion, constituting 1.75% of Israel’s entire GDP and 5.5% of all Israeli high-tech exports, according to the firm’s corporate responsibility report. Intel Israel purchased $3.5 billion in goods and services from Israeli businesses, up 60% from the $2.2 billion recorded in 2021.

Taking Intel by surprise, Prime Minister Benjamin Netanyahu announced in June that Israel had inked an agreement “in principle” with the US semiconductor giant for an “unprecedented” investment of $25 billion to expand its chip manufacturing facilities in Kiryat Gat — the largest ever international investment for the country.