Tower Semiconductor (TSEM) shares soared higher Tuesday after the foundry chip manufacturer agreed to a $5.4 billion takeover by Intel Corp. (INTC).
Intel will pay $53 per share for Israel-based Tower, a near 63% premium to the group's $33.13 closing price on the Nasdaq yesterday. Intel said the deal will help advance the group's expansion into foundry services -- the actual manufacturing of chips -- as it ramps-up its billions in investment over the next few years amid a surge in demand and a global shortage in semiconductor equipment.
Earlier this year, Intel unveiled plans Friday to invest $20 billion into two chipmaking plants in Ohio - following on from similar investments in Arizona last March -- that it hopes have have up-and-running within three years as it expands domestic production.
The plans dovetail with President Joe Biden's ambitions for a $52 billion bill that would help U.S. chipmakers expand domestic production levels and reduce their dependence on overseas markets for crucial components in the nation's industrial and tech supply chain.
“This deal will enable Intel 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 for semiconductors,” said CEO Pat Gelsinger.
Intel shares were marked 0.1% higher in early Tuesday trading to change hands at $47.65 each. Tower Semiconductor shares soared 42% to $47.10 each.
KeBanc Capital Markets analyst John Vinh said the deal would provide Intel with "an established customer base that could provide revenue synergies for potentially upselling to other services", but cautioned that with Tower being a specialty foundry, "it's unclear whether it will be able to help Intel scale to the same volumes and compete with Samsung and TSMC on mainstream process technologies."
"Also, while we think this acquisition clearly represents a step in the right direction, we still believe Intel's transition to become a service foundry faces a very long learning curve that is likely to take years to complete," he added.
Intel shares hit a two-year low late last month after it cautioned that supply chain disruptions would keep a lid on near-term profits growth, clouding the impact of its record fourth quarter revenue haul.
Intel said March quarter earnings would come in around 80 cents per share, around 6 cents shy of the Refinitiv forecast, after posting record revenues of $19.53 billion and an adjusted bottom line of $1.09 per share over the three months ending in December, both of which handily topped Street consensus forecasts.
- Rising interest rates, inflation and market volatility are on the horizon. You don’t want to miss out on this exclusive opportunity to unlock Action Alerts PLUS at our lowest price of the year.
