Consolidation amongst chipmakers is continuing to escalate amidst this broader chip shortage. Many of the largest semiconductor manufacturers have recently announced billion-dollar acquisitions over the past year, although many have since fallen apart due to regulatory intervention. On that subject, Intel (NYSE: INTC) just announced it plans to buy an Israeli chip company called Tower Semiconductor (NASDAQ: TSEM) for almost $6 billion.
According to sources familiar with what’s going on, a deal could officially be unviewed sometime this week, although there’s still the chance that these early talks could fall apart. Paying $6 billion is already a hefty premium, considering that Tower’s current market cap is around $3.6 billion.
Tower Semiconductor is similar in many ways to another chipmaker Intel wanted to buy last year, GlobalFoundries. At the time, Intel was willing to part with over $30 billion to buy out the company. However, management of GlobalFoundries decided it would be better to go public through an IPO instead, leaving Intel looking for other buyout opportunities.
Other big semiconductor buyout proposals include Nvidia’s (NASDAQ: NVID) initial bid to buy out the British-based Arm Holdings. The $40 billion buyout plan was eventually scrapped due to regulatory hurdles. However, these failures have mainly been a size issue, as antitrust regulators are worried about consolidating too many big companies into a single corporate entity.
Given that Tower is much smaller than Intel, there’s a good chance the deal will go through after all. Intel promised in January to invest over $20 billion into new chip-making manufacturing plants. That’s not to mention Intel’s other investment pledges as well, which have amounted to over $100 billion.
Shares of the Israeli semiconductor giant shot up over 49% in after-hours trading as investors reacted to the news. On the other hand, Intel didn’t move much following the news. Most analysts are at least neutral, if not bullish, about Intel, simply because the chip shortage is expected to remain a long-term issue in America. However, more analysts are bullish on Intel’s competitors, including Nvidia and AMD. Past manufacturing problems with Intel have damaged the company’s reputation a bit.
Besides this piece of news, Intel has been making other big strategic plays as of late. This includes possibly spinning off its Mobileye business, which makes components for self-driving cars. Given the current buzz surrounding EV stocks, many analysts expect this one business alone to be worth over $50 billion.
Intel Company Profile
Intel is the world’s largest chipmaker. It designs and manufactures microprocessors for the global personal computer and data center markets. Intel pioneered the x86 architecture for microprocessors. It was the prime proponent of Moore’s law for advances in semiconductor manufacturing, though the firm has recently faced manufacturing delays. While Intel’s server processor business has benefited from the shift to the cloud, the firm has also been expanding into new adjacencies as the personal computer market has stagnated. These include areas such as the Internet of Things, artificial intelligence, and automotive. Intel has been active on the merger and acquisitions front, acquiring Altera, Mobileye, and Habana Labs in order to bolster these efforts in non-PC arenas. – Warrior Trading News