Intel is betting $5 billion on old semiconductor technology — Quartz

Intel is betting big on old semiconductor technology. The company will spend $ 5.4 billion to buy Tower Semiconductor, an Israeli chip maker that specializes in analog semiconductors used in cars, phones and medical devices. Unlike most U.S. semiconductor companies that outsourced production decades ago, Intel is doubling its strategy of setting up and buying chipmaking plants in the United States.

The largest U.S. semiconductor companies once produced many chips; in the 1990s, American factories produced 37% of the world’s semiconductors. But since then, American chip giants have given up much of Taiwan’s market. The United States now produces only 12% of all semiconductors. Many American semiconductor companies, such as Qualcomm, Broadcom, Nvidia and AMD, went “out of place”, meaning they closed their plants, focused all their efforts on developing the most advanced chips they could, and outsourced them. production to someone else (usually Taiwanese chip giant TSMC).

But supply disruptions related to the pandemic, and the global shortage of semiconductors they helped create, have shown how much of the economy depends on semiconductors – even low-margin analog chips – produced by companies like Tower Semiconductor. The shortage of chips has stopped automatic assembly lines, disrupted work in 169 industries and cut 1% of US GDP in 2021. Now U.S. companies are working to make their supply chains less dependent on remote foundry chips, and U.S. lawmakers are struggling to create incentives for semiconductor companies. return production to the United States. Intel sees a chance to make money on some of the most low-tech chips.

Intel is investing in Tower Semiconductor analog chips

Tower specializes in analog semiconductors, which are an older version of chip technology that dates back to the beginning of computing in the 1950s and 60s. Nowadays, they have mostly been replaced by digital chips, which are less, faster and less prone to errors. The smallest, most advanced 5-nanometer digital chips can sell for more than $ 230 each. Analog chips usually cost less than $ 1.

But even so, analog chips still play an important role in any device that relies on physical sensors, including cars, smartphones and so on. For example, an analog chip can be attached to a thermometer and send an electrical signal that varies in frequency and amplitude depending on the temperature. These electrical signals can then be read by digital chips that are capable of processing only binary bits of information in the form of electrical 1 and 0. Analog chips are also useful for controlling the amount of energy consumed by the device from its batteries.

In recent years, semiconductors have become a very popular sector for investment, but most investors focus on the most advanced digital chips rather than the old-school analog semiconductors. Despite this, Intel executives tried to express admiration for the Tower Semiconductor deal on a call with investors on February 15th. Intel CEO Pat Gelsinger said the two companies were “very complementary” as Intel specializes in developing advanced chips and Tower specializes in producing older chips for niche use. For example, Intel could sell the carmaker high-tech digital chips that help the car drive the car, while Tower could produce analog chips that help moderate the amount of electricity the car consumes from the electric battery.

Financial analysts on the call questioned the prudence of spending $ 5 billion to break into the low-profit analog chip business. CJ Muse, an analyst at Evercore Group, noted that the profits of Tower Semiconductor lag far behind counterparts such as TSMC. “I’m really trying to figure out how it helps you and yours [manufacturing] Honestly, strategy, ”Muse said, according to a transcript of the Factset call.

Helsinger argued that Tower Semiconductor, which operates eight chip factories, including two in the U.S., has not reached the desired scale to make more profit from its operations, but will grow with Intel’s investment.

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