Sources inform ''Globes'' that specialty foundry Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) is the only contender to acquire the Kiryat Gat fab of Micron Technology Inc. (NYSE: MU). Tower will have to decide whether it wants to embark on a new adventure, two year's after acquiring Micron's fab in Japan.
In the past few months, Micron Israel has been in intensive talks with the government and business parties to keep the fab operating under new ownership. Micron Technology Israel general manager Jonathan Wand set a deadline of a few months until a decision is made whether to close the fab and fire all its 1,000 employees.
Sources inform ''Globes'' that two other companies were interested in the fab: Maxim Integrated Products Inc. (Nasdaq: MXIM) of the US and France's Altis Semiconductor. The price for the fab is around $30 million, which is only a fraction of the investment necessary to take it over (in the case of Tower, part of the payment may be in shares).
The buyer will also have to invest tens of millions of dollars in working capital to operate the fab's equipment over the next 18 months for Micron customers, and to assume costs of commitments to employees - an expense that Micron is seeking to evade by selling the fab.
Switching to analog processors
Micron decided to abandon its Israeli production operations in December 2012, and to either sell or close the fab. Intel Corporation (Nasdaq: INTC) built the fab in 1998, and it was known as Fab 18. It produces components for memory chips using obsolescent technology, rendering its production lines uncompetitive.
At a press conference six weeks ago, Wand said that the fab was profitable and competitive. Management's strategy for keeping the fab operating is to refocus on the analog processor market, which many semiconductor companies are targeting, but Micron Israel has relatively advanced 65-90-nanometer technology for silicon wafer production for transistors.
Wand says that the fab will need only $20-30 million to convert to the new strategy, and this is apparently what interests Tower - the possibility of getting its hands on advanced technology for almost nothing in terms of automated chip making equipment. Nonetheless, an acquisition is no simple matter for Tower, which made a similar deal with Micron for its Japanese fab in June 2011. That acquisition cost $140 million, including related commitments. Tower paid $40 million in cash and $30 million in an issue of shares, which are vested until this year. The balance of the cost is for employee commitments.
When Tower acquired the Japanese fab, Micron promised to make minimum purchases of processors each month on a take or pay basis. The purpose of the contract was to give Tower enough time to adapt the fab's production lines to Tower's customers and give the company a guaranteed source of revenue in the interim. The agreement was graduated, and at the beginning of 2013, Micron slashed its purchases. But Tower has not been able to find customers for the fab's full production capacity of 60,000 wafers a month.
The reduction in Micron's purchases are reflected in Tower's guidance for the first quarter of only $110-120 million revenue 22% less than for the preceding quarter and 31% less than for the corresponding quarter of 2012.
Tower is therefore very cautious about acquiring Micron's Israeli fab, and it wants aid from two interested parties: the government, from which it wants salary subsidies for the fab's 1,800 employees, 1,200 of whom are directly employed; and from Micron, from which Tower probably wants terms similar to those when it acquired Micron's Japanese fab, in the form of guaranteed purchases for 2-3 years or some other cost-reducing mechanism.
Micron Israel said, "We cannot comment on business negotiations. Negotiations for the sale of the Israeli fab are conducted with potential buyers and the management of Micron Technology Inc."
Published by Globes [online], Israel business news - www.globes-online.com - on April 3, 2013
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