With Tower acquisition, Intel's manufacturing turnaround comes into focus

The plan to revive Intel’s stalled manufacturing business is beginning to come into focus.

Early Tuesday, Intel announced its $5.4 billion acquisition of the not-exactly-household-name Tower Semiconductor, a contract chip manufacturer.

Intel gets a few things with its acquisition of Tower: The company has new chip factories in Israel, its home base, as well as two in the U.S., and another in Italy. Tower’s main business involves making chips using older process manufacturing technology that Intel no longer uses. These older chip designs, though, have found markets in sectors that include defense, automotive, wireless and industrial sensors, among others.

Intel is buying Tower, executives say, to give it a new portfolio of products — and to, in turn, offer those to its existing customers.

“Our strength in leading-edge nodes, scale manufacturer, combined with Tower's leadership in specialty technology and a customer-first approach, a perfect match with each other,” Intel CEO Pat Gelsinger said in a conference call this morning. “And this paves our way to unlock new opportunities for our customers and address more needs within the broader market.

Most importantly, perhaps, Intel is buying a company with 30 years of experience as a contract semiconductor manufacturer. Intel’s Foundry Services is less than a year old and doesn’t have the experience some of its rivals have gained over years of operating.

But, the plan for Tower won’t take shape immediately. Intel said the deal won’t close for 12 months, after which point, Intel says it plans to integrate Tower Semi. Gelsinger estimated that it will take a couple of years to dial in the new business, and turn it into a “competitive foundry.”

Intel has been promising an enormous amount of spending to expand its manufacturing business. The company has committed $20 billion to a factory expansion in Arizona, as much as $100 billion to build out its new Ohio site, and up to $95 billion in Europe — and it doesn’t show signs of slowing down.

“At the same time however, only a flavor of what it will cost to bring it all about has so far been offered; we still do not know when the trough is, how deep it goes, and what the company really will look like on the other side of the chasm (assuming they get there),” Bernstein analyst Stacy Rasgon wrote in a research note.