At the weekend, official Indian sources reported on X (Twitter) a huge investment by Israeli semiconductor manufacturer Tower Semiconductor (TASE: TSEM; Nasdaq: TSEM) together with Indian conglomerate Adani Group headed by Gautam Adani, which controls Haifa Port after buying it from the state early last year.
According to the report, Tower and Adani Group will together invest $10 billion in constructing a chip factory in the state of Maharashtra. "BIG news for Maharashtra" wrote Deputy Chief Minister of Maharashtra Devendra Fadnavis. According to him, the two companies will invest the sum in two stages: 70% initially, with annual output of 40,000 wafers, rising to 80,000 at full capacity.
Apparently no agreement on the project has yet been signed - Tower would have been obliged to report such an agreement to the Tel Aviv Stock Exchange and the US Securities and Exchange Commission. Speculation about Tower constructing a factory in India has, however, been heard for a while. India offers incentives to attract chip makers that could cover much of the investment and thereby reduce the risk. Tower said in response to the reports: "Tower constantly examines growth opportunities. If there’s something material, the company will report as required." At any rate, under the influence of the report, Tower opened trading on Friday on Wall Street with a rise, but later came into line with the negative trend of the market, to close 1.8% off.
Two year process
Sergey Vastchenok, senior equity analyst at Oppenheimer Israel, says that India is more ready than in the past to build a chip factory. "Building a fab isn’t simple. It’s a long process that takes two years on average. Money isn’t the main thing," Vastchenok stresses. "TSMC, for example, is building a new fab in Arizona, and that’s a company that knows how to build fabs, but the project has still been stuck for several years and is due to start working only next year.
"There’s a great deal of demand for chips," he adds, "and the Indians want to reduce their dependence on China, but I’m not sure how many people in India are capable of working in such a factory, and what the bureaucratic situation is there. It’s not like China, where the Party gives an order and everyone comes into line. It’s easier said than done."
Tower currently has fabs in Israel, the US, and Japan, to which was recently added a fab in Italy, and an Intel fab in the US (New Mexico) for 300 mm chips. This was under an agreement between Tower and Intel signed after the Intel’s acquisition of Tower was cancelled last summer. The agreement stipulates that Tower will invest $300 million to acquire and install equipment in the facility.
In Israel, Tower operates at Migdal Ha’emek. Earlier this year, it announced the closure of Fab 1, one of its two fabs in the town, which produced old designs of chips for which demand had fallen.
"Good financial opportunity"
In an interview with "Globes" six months ago, Tower Semiconductor CEO Russell Ellwanger said that the company had set itself an annual revenue target of $2.66 billion, which compares with actual revenue of $1.4 billion in 2023. The model does not set a target date, and is based on 85% capacity usage.
Ellwanger said then that, although the company was not under pressure to invest further in expanding production capacity, it was certainly looking at opportunities. "If there’s a financially good opportunity, we’ll do it," he said. He also said, "It’s no secret that India wants to set up chip production factories, and the state will provide incentives, but we’ll check everywhere that we can add value without harming our shareholders. Our eyes are open."
Asked why the company would want to expand in India rather than in Israel, Ellwanger replied, "If we had an opportunity to build in Israel, that would certainly make more sense than in a country where we have no presence at all. If all the conditions were equal, Israel would be the first place in which to expand. But Israel does not have a history of 75% grants like India. If it wants to subsidize competitively, it will certainly be a preferred destination. We owe a lot to Israel."
Tower Semiconductor is traded on Nasdaq and the Tel Aviv Stock Exchange at a market cap of $4.5 billion and a share price of $40.50, after a 33% rise so far this year. This is still not the level at which it was traded when it was due to be acquired by Intel, when it was valued at $5.4 billion and its share price was 30% higher than it is now.
Published by Globes, Israel business news - en.globes.co.il - on September 9, 2024.
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