Gelsinger, who also stepped down from the company’s board of directors, helped build Intel’s technology over the years. 

In his absence, Intel has appointed David Zinsner, the company’s chief financial officer, and Michelle Johnston Holthaus, formerly the executive vice president and general manager of Intel’s Client Computing Group, as interim co-CEOs.

Intel appointed Zinsner and Holthaus to maintain stability and drive the company’s product and manufacturing goals even as the transition takes place. 

Zinsner, with over 25 years of experience in finance and operations in the technology sector, has broad knowledge of semiconductor manufacturing, having previously held leadership positions at Micron Technology. 

Holthaus, who has been with Intel for nearly three decades, now holds the newly created position of CEO of Intel Products, overseeing the company’s various key divisions, including the Client Computing Group and Data Centre and AI Group.

Frank Yeary, Intel’s independent board chair, will take on the role of interim executive chair as the board searches for a permanent CEO. The company has formed a search committee, and Yeary has stated that the priority is to find a successor who can continue Intel’s journey of innovation while restoring investor confidence and improving profitability.

Gelsinger’s tenure at Intel, particularly after his return in 2021, included the revitalisation of the company’s manufacturing processes and helped Intel to compete more effectively with rivals like TSMC and Samsung. 

However, there were delays in major projects and struggles to meet expectations surrounding AI and chip manufacturing. 

Nonetheless, Gelsinger’s contributions to Intel’s growth, including his early work on processors like the 80486 and his leadership in the development of technologies such as Wi-Fi and USB, are widely recognised.

Speaking of his time at Intel, Pat Gelsinger said he was happy with the company’s accomplishments and grateful for the opportunity to lead a team of talented individuals. 

Even as he leaves the company, Zinsner and Holthaus will continue to focus on simplifying Intel’s product portfolio and advancing its manufacturing processes, ensuring that the company remains competitive in the global semiconductor industry.

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This funding, announced by the Department of Commerce, will support Intel’s manufacturing projects in Arizona, New Mexico, Ohio, and Oregon, to revitalise the American semiconductor industry under the CHIPS and Science Act of 2022.

The CHIPS Act, a signature initiative of President Joe Biden’s administration, allocates $52.7 billion to strengthen the domestic chipmaking sector. Of this, $39 billion is earmarked for semiconductor production and $11 billion for research and development. 

Intel’s subsidy is the largest awarded to date under the programme, as the government seeks to reduce reliance on foreign supply chains and address vulnerabilities exposed during the pandemic.

Intel, which has already achieved several project milestones, is expected to receive at least $1 billion of the subsidy by the end of 2024. 

Commerce Secretary Gina Raimondo spoke on the impact of this investment, stating that it ensures “American-designed chips are manufactured and packaged by American workers for the first time in years.”

Scaling Domestic Capacity Amid Challenges

Intel’s funding will help in boosting the U.S. semiconductor space. The company has committed to an expansive $100 billion domestic manufacturing initiative across four states, which includes constructing new facilities and upgrading existing ones. 

However, the grant amount was revised from an earlier projection of $8.5 billion, following Intel’s separate $3 billion contract with the Department of Defense for producing advanced semiconductors under a national security programme. 

This adjustment was made without compromising the company’s vision or its projects’ timelines.

Nevertheless, the chipmaker had declining profit margins and workforce reductions have followed years of aggressive investments led by CEO Pat Gelsinger. 

But Gelsinger noted the importance of bipartisan support for restoring U.S. technology leadership, calling it “critical to the nation’s economic growth and security.”

Intel’s evolving business strategy includes transitioning to a “foundry” model, where it produces chips designed by external firms. This change has necessitated significant capacity-building, with major investments in new fabrication plants, particularly in Ohio and Arizona. 

Yet, global market challenges have delayed some projects, including those in Germany and Poland, reflecting the complex dynamics of the semiconductor industry.

Safeguards and Incentives

The Commerce Department has introduced measures to ensure accountability and protect taxpayer funds. Intel’s award includes restrictions on stock buybacks for five years and provisions for sharing excess profits. 

Again, the company opted against an $11 billion government loan initially offered, pointing to unfavourable terms for its shareholders.

Beyond direct subsidies, Intel stands to benefit from a 25% investment tax credit on qualified expenditures exceeding $100 billion. These incentives, coupled with strategic partnerships, such as its agreement with Tower Semiconductor, allow the company to strengthen its domestic and global footprint.

The U.S. government has prioritised semiconductor production as a cornerstone of its industrial and economic strategy. The CHIPS Act is part of a goal to reshore manufacturing, create high-paying jobs, and enhance national security. 

White House Deputy Chief of Staff Natalie Quillian described the Intel subsidy as an essential step in implementing this vision, reiterating its role in delivering tangible benefits to the American people.

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The acquisition significantly advances Intel’s IDM 2.0 strategy as the company further expands its manufacturing capacity, global footprint and technology portfolio to address unprecedented industry demand.

“Tower’s specialty technology portfolio, geographic reach, deep customer relationships and services-first operations will help scale Intel’s foundry services and advance our goal of becoming a major provider of foundry capacity globally,” said Pat Gelsinger, Intel CEO.

“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.”

As a key part of its IDM 2.0 strategy, Intel established Intel Foundry Services (IFS) in March 2021 to help meet the growing global demand for semiconductor manufacturing capacity and to become a major provider of US- and Europe-based foundry capacity to serve customers globally.

IFS currently offers leading-edge process and packaging technology, committed capacity in the U.S. and Europe and other geographies in the future and a broad intellectual property (IP) portfolio.

Tower’s expertise in specialty technologies, such as radio frequency (RF), power, silicon-germanium (SiGe) and industrial sensors, extensive IP and electronic design automation (EDA) partnerships, and established foundry footprint will provide broad coverage to both Intel and Tower’s customers globally. Tower serves high-growth markets such as mobile, automotive and power.

Tower operates a geographically complementary foundry presence with facilities in the U.S. and Asia serving fabless companies as well as IDMs and offers more than 2 million wafer starts per year of capacity – including growth opportunities in Texas, Israel, Italy and Japan. Tower also brings a foundry-first customer approach with an industry-leading customer support portal and IP storefront, as well as design services and capabilities.

“With a rich history, Tower has built an incredible range of specialty analog foundry solutions based upon deep customer partnerships, with worldwide manufacturing capabilities. I could not be prouder of the company and of our talented and dedicated employees,” said Russell Ellwanger, Tower CEO.

“Together with Intel, we will drive new and meaningful growth opportunities and offer even greater value to our customers through a full suite of technology solutions and nodes and a greatly expanded global manufacturing footprint. We look forward to being an integral part of Intel’s foundry offering.” 

Dr Randhir Thakur, president of Intel Foundry Services, said: “We are thrilled to welcome the Tower team to Intel. Their decades of foundry experience, deep customer relationships and technology offerings will accelerate the growth of Intel Foundry Services. We are building Intel Foundry Services to be a customer-first technology innovator with the broadest range of IP, services and capacity. Tower and IFS together will provide a broad portfolio of foundry solutions at global scale to enable our customers’ ambitions.”

Intel is the only leading-edge player with both research and development and manufacturing in the U.S., including recently announced capacity expansions in Arizona and New Mexico, as well as plans to build a new mega-site in Ohio. Tower’s technology and manufacturing footprint is highly complementary to Intel’s IFS capabilities in leading-edge processes, allowing the combined company to provide broader offerings to customers at scale. With the addition of Tower, Intel is strongly positioned to bring more value to customers across the nearly $100 billion addressable foundry market.

Transaction Details and Timing

The transaction is expected to be immediately accretive to Intel’s non-GAAP EPS. Intel intends to fund the acquisition with cash from the balance sheet.

The transaction is expected to close in approximately 12 months. It has been unanimously approved by Intel’s and Tower’s boards of directors and is subject to certain regulatory approvals and customary closing conditions, including the approval of Tower’s stockholders.

IFS and Tower Semiconductor will run independently until deal closure; IFS will continue to be led by Thakur, and Tower will continue to be led by Ellwanger during this time. Upon the close of the transaction, Intel’s intent is for the two organizations to become a fully integrated foundry business. The company will share more details on integration plans at that time.

Goldman Sachs & Co. LLC served as financial advisor to Intel; and Skadden, Arps, Slate, Meagher & Flom LLP and Yigal Arnon & Co. served as legal advisors. J.P. Morgan Securities LLC served as financial advisor to Tower; and Latham & Watkins, LLP and FISCHER (FBC & Co.) served as legal advisors.

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