Thank you for staying by and welcome to the Intel Tower Business Update Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Tony Balow, Vice President of Investor Relations at Intel. Please go ahead.
Thank you, Operator. Good morning and afternoon, everyone. Welcome to the conference call to discuss the announcement we made earlier today of Intel's proposed acquisition of Tower Semiconductor. A replay of today's audio cast will be available later today by visiting Intel's investor website, INTC.com, and Tower's investor website, towersummit.com. Joining me today are Pat Gelsinger, CEO of Intel; Dr. Randhir Thakur, Senior Vice President and President of Intel Foundry Services; and Russell Ellwanger, CEO of Tower Semiconductor. Each will present remarks on the strategic merits of the transaction and how this acquisition fits into the long-term plan that Intel announced last year. We will leave time for Q&A today, and we have time to work Q&A later this week during our investor meeting. Our discussion today will include forward-looking statements related to our outlook, expectations, and beliefs.
They are subject to a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Please review our press release announcement regarding the proposed transaction as well as our SEC filings with further details regarding these risks and uncertainties. With that, I'll turn it over to Pat.
Hey, thank you, Tony. I'm excited to be here this morning with Randhir and Russell, the CEO of Tower Semiconductor, and to discuss with you the proposed acquisition of Tower, which is a leading foundry supplier for specialty and analog semiconductor solutions. This is an important milestone today for us as we continue to execute on our IDM 2.0 strategy. This acquisition announcement positions us to not only capitalize on the large and growing foundry opportunity but also help to accelerate our efforts to address the unprecedented demand for semiconductors and the need for a more balanced, resilient global supply chain. This is an important milestone in our journey as a company, a journey that began almost a year ago as we continue to make progress in restoring Intel's leadership position in our industry.
I want to start by saying how thrilled I am to welcome Tower into the Intel family. This is a great day. I've been extremely impressed by the depth and breadth of the entire team, their deep customer relationships, service-oriented operating model. These are all critical elements that we need to gain and learn as Intel, as we accelerate their capabilities. We're also going to combine to enable the scale and the synergies of the foundry offerings and advance our goal of becoming a major global provider of foundry services and capacity. Our technologies and capabilities at Intel are highly complementary. Our strength in leading-edge nodes, scale manufacture, combined with Tower's leadership in specialty technology and a customer-first approach, is a perfect match with each other. This paves our way to unlock new opportunities for our customers and address more needs within the broader market.
Last year, Intel established Intel Foundry Services, or IFS, to help meet the growing global demand for semiconductor manufacturing capabilities. As you've heard me share before, I believe this era of global demand will persist, driven by simply the digitization of everything, accelerated by the four superpowers of technology: ubiquitous computers, pervasive connectivity, cloud-to-edge infrastructure, and AI. Today, the foundry opportunity is about $100 billion, and it's expected to grow significantly by the end of this decade. Three segments represent most of the opportunity: mobile, compute, and automotive. Leading-edge technology, which combines technologies pioneered by Intel, will comprise about 70% of that market in 2030. The market for mature and specialty technologies, the segment that Tower serves today, will be approximately 30% of the addressable market.
As both Randhir and Russell will highlight, we believe that together we will be able to capitalize on this growing opportunity and better serve our customers in an even more meaningful way. Our vision for IFS is a bold one: to become one of the world's leading foundries. With Tower, we are accelerating our progress toward this vision. I now like to turn it over to Russell, CEO of Tower. Russell?
Thank you, Pat. It is indeed exciting to be here on this very important day for Tower. This transaction is a huge testament of what Tower has achieved over our nearly 30-year history, building the leading specialty analog foundry with best-in-class technology offerings and manufacturing capabilities. This has resulted in the strong global company that we are today and our major presence in and impact on the semiconductor industry. We've been able to achieve robust, profitable growth and build lasting, value-based customer partnerships to the benefit of our employees, customers, partners, and shareholders. This transaction is an important step forward for the benefit of all Tower stakeholders and customers.
Our vision is to provide the highest-value analog semiconductor solutions, as validated by our customers, employees, shareholders, and partners, with the mission of being a trusted, long-term partner with a positive and sustainable impact on the world through innovative analog technologies and manufacturing solutions. This transaction with Intel is fully aligned to both our vision and mission, as well as our corporate value vectors of partnership, impact, innovation, and leadership, with excellence defined as efficiency, effectiveness, and quality at the center of all that we do. We now will be even stronger. We will be able to provide a full suite of technology solutions over a complete gamut of technology nodes with a greatly expanded manufacturing footprint, achieving greater scale much more quickly than we could have attained independently.
In turn, this will drive our ability to enhance our present customer relationship and as well enter into multiple additional growth opportunities, increasing the value for all parties. We are bringing with us, firstly, the widest range of specialty analog technologies serving high-growth markets such as advanced mobile and high-speed infrastructure communications, next-generation imaging and displays, automotive, and environmentally needed state-of-the-art power efficiency solutions with high-quality, flexible, worldwide manufacturing capabilities. To enable this, we bring highly devoted, talented, creative, and skilled employees, many of whom are worldwide acknowledged experts with profound experience. We believe this will be an important addition to Intel, strongly benefiting its foundry strategy and activities. I believe success and fulfillment is a function of having both a great vision and incredible talent of high character. The two are deeply connected.
The vision unifies and inspires employees, and having the best and brightest talent enables the company to not only meet its vision but to expand it. This has contributed significantly to Tower's achievements. I have been extremely impressed by Pat and by his vision for Intel. We are honored that he has chosen Tower to be an integral part of Intel, not only to help enable but to expand its vision. I'd like now to turn the call over to Randhir Thakur, who leads IFS and will address how Tower complements Intel Foundry Services. Randhir, over to you.
Thank you, Russell. I'm excited about this acquisition and the opportunity it will unlock for Intel. Tower has pioneered a unique foundry business model built on specialty technology, which, as Pat noted, is an excellent complement to our leading-edge offerings. Specialty technologies enable a wide variety of essential analog semiconductor solutions and extend the life of a process node, allowing capacity investment to serve customers for many years. This combination of leading-edge and specialty technologies will position us as a truly global end-to-end foundry. When we launched IFS last March, our customers were overwhelmingly excited to work with us. One of the things they consistently asked me was to add specialty and mature nodes to our portfolio. With Tower, we can honor that request and more broadly serve key market segments. Pat mentioned IFS's three target segments: mobile, compute, and automotive. These industries collectively represent 85% of the market demand.
Tower brings the specialty capabilities needed to offer comprehensive solutions for mobile and automotive customers. Let me give you some examples of the value our combined portfolio will offer to these segments. For our mobile customers, Intel and Tower bring complementary technologies together into a comprehensive solution. For example, Intel's leading-edge technology is well-suited for mobile SoC system on a chip due to its compelling low-power performance, and Tower has a strong presence in our front-end and power management capabilities. The automotive segment is experiencing technological disruptions and a reimagining of the semiconductor supply chain. With the rapid shift to autonomy and electrification, the demand for semiconductors is increasing significantly. By combining Intel's leading-edge capabilities with Tower's battery management solutions and auto-certified portfolio, for example, we can meet the needs of OEMs who are looking for direct sourcing relationships and development partners.
Tower's strong customer service culture fits well with our customer-centric approach. Tower's technologists have established deep relationships with their customers, partnering to co-develop valuable solutions leveraging key technologies such as RF power, silicon germanium, sensors, and displays. This is the trust-based foundry model that IFS is cultivating with our customer base. Additionally, Tower's broad IP portfolio and EDA partnerships provide a strong platform for design enablement, which is critical to the core development model. Tower's nearly 30 years of foundry experience and strong customer relationships will become even more powerful when joined with Intel's leading-edge technology and global scale. Today's announcement comes on the heels of key announcements we shared last week. We introduced a new $1 billion innovation fund in partnership with Intel Capital, which will support early-stage startups and established companies building disruptive technologies for the foundry ecosystem.
We launched the IFS Accelerator Ecosystem Alliance program with 16 ecosystem partners to accelerate customer innovation and provide a seamless interface with Intel's technology. I am extremely pleased with our momentum and where we are headed. We are in the beginning stages of addressing a large market opportunity and are bringing the right technology and operational experience together. Our partnership with Tower will accelerate our scale as a customer-first technology innovator with the broadest range of IP services and capacity in the market. Over to you, Pat.
Hey, thank you, Russell. Thank you, Randhir. To summarize, Intel's proposed acquisition of Tower positions us to not only capitalize on the large and rapidly growing foundry opportunity but also help our efforts to address unprecedented demand for semiconductors and need for a more resilient, balanced global supply chain. It is yet another signal of our intent to deliver on our strategy and our plans that we have laid out and will expand upon in more detail at our upcoming investor meeting. Intel is on the move, and we are thrilled to have Tower join us on that journey. With that, let's go to Q&A. Operator, let's take our first question.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Our first question comes from CJ Muse with Evercore. You may proceed with your question.
Yeah. Good morning. Good afternoon. Thank you for taking the question. I guess, Pat, trying to really better understand the fit here. Subscale asset, and if I go by the gross margins in the low 20s, it would suggest that not getting paid for the specialty technologies that Tower's offering. So really trying to understand how this helps you and your IFS strategy, to be honest.
Yeah. I'd say it really is two words: scale and synergy. With this, the technologies of Tower today, they have extraordinary interest from customers. I'll ask Russell to comment on that in a second, but simply do not have the scale to meet the market demands. For us, we saw tremendous synergy. As we look at the ability to accelerate the build-out of everything associated with foundry, whether that's IP creation, customer service and support, necessary infrastructure requirements, we see the 30-year history of Tower as something that's going to overall drive an acceleration of that business. Simply put, scale and synergy, we see this as a great way to accelerate the vision that I laid out in March of last year. Let me just ask Russell to add a bit to that and how he sees this playing out as well.
Yeah. Thank you, Pat. I fully agree manufacturing margins are very, very tied to manufacturing scale. How much capacity do you have to absorb fixed cost? Intel will add tremendous to Tower as far as manufacturing scale. As far as the products that we make, they are value-add products that are very well received by our customers. The relationships are extremely strong. What we do with optical transceivers with silicon germanium, what we do with RF-SOI for front-end modules, what we do within silicon germanium PAs, integrated switch LNAs, very, very demanded for extremely high-end communications, both infrastructure and mobile platforms itself. Next-generation imaging and display, very high-value products that get paid well for, and margins tie into scale, as was stated. The power management capabilities within the company, we've not been able to capitalize on because of limited scale.
Battery management, which is extremely needed right now for electric vehicles, we have very strong presence in, and I think one-of-a-kind type technology. With that, I think it's an amazing match that will benefit Tower's customers amazingly so, and I think will also benefit Intel's customers.
Thank you, Russell.
Thank you.
Next question.
Thank you. Our next question comes from John Pitzer with Credit Suisse. You may proceed with your question.
Yeah. Good morning, guys, and congratulations, and thanks for letting me ask the question. Pat, maybe just to follow on to CJ's question, just given the synergies and scales that you expect, how would you expect this asset's gross and operating margins to trend over time? If you could also put that into context, Randhir, as to how we should think about just the margin profile of IFS, because as CJ did mention, Tower is running well below peers right now on both gross and op. I am curious as to how we think about the long-term target and the path to get there.
Yeah. We will describe a little bit more of this at our investor meeting, which I hope to see you all at later this week. In general, the way you should think about it is we see great opportunity with scale to drive up the margin profile. We will see the aggregate margin profile of the combination of the organic IFS business with Tower. As I said, we expect it to be in line with the leading-edge foundry suppliers over time as we get to scale and as we build out the portfolio. That is the margin objective that we would have. Obviously, it is going to take us a couple of years to get there, but we are very comfortable that this becomes a competitive foundry, one that will be representative of the margin profile of the industry.
We do expect that these technologies, with the synergy and scale that we are laying out, will allow us to get there. Ranveer, maybe you could just add a point.
Just wanted to add a couple of things. One, this will be accretive on close and the acquisition. Secondly, as we build our IDM 2.0 strategy, we really have different pieces that will come together, pieces for differentiation. As far as Tower is concerned, very unique. One that we can position and grow through the synergies as well as through the capacity expansion.
Thank you. Next question.
Thank you. Our next question comes from Daniel Nenni with SemiWiki.com. You may proceed with your question.
Hello. Thank you for taking my question. I'm curious about the military aspect, the Jazz subsidiary, the former Rockwell fab. Is that also a big part of the strategy here, is leveraging the military embedded systems business?
Overall, we do expect that specialty technologies and what we've already outlined with the RAMP-C program that you might be aware of, that Intel has also won the contract to be the prime supplier of that to build a commercial foundry for the military purposes and DOD. We believe this is a great opportunity for Intel to step into that space broadly, building a large-scale commercial foundry, but also meeting defense intelligence requirements as well. We do believe that the augmentation of that strategy with the specialty technologies that Tower brings to the table will be nicely complementary to that strategy. I'll say I was in Washington, D.C. last week talking to many on this exact topic, and there's substantial enthusiasm and very good progress that's being achieved as part of the RAMP-C program that we've described today. Randhir, anything that you would add?
We will talk more about it on investor day as well. As Pat stated, we already are DOD Department of Defense is our customer for RAMP-C, and we made the press release about $250 million. That is the first phase investment we got there. We are driving about 30 test chips with our customers and partners as a result. Given what is on the specialty side, especially on the mature nodes, we will complement very nicely with what we are doing on the RAMP-C and commercial protocol.
Thank you. Next question.
Thank you. Our next question comes from Raji Gill with Needham & Company. You may proceed with your question.
Yes. Thank you, and congratulations on the acquisition. Just a question in terms of regulatory challenges, if there are any. Russell, I was wondering if you could maybe discuss kind of what your exposure is to China in terms of percentage of revenue, and if you could kind of flesh that out a little bit more, that would be helpful.
Yeah. Hey, thank you. We do expect, and we suggested it's a year till closure, giving ourselves adequate time to go through the various regulatory processes and approval. We do expect that given the highly complementary nature of the Tower assets versus the Intel assets, that there will be a very smooth process. Regulatory approvals do take some amount of time for that. We do expect that that includes approvals across the various geographies, including China as well. Russell, if you want to add a little bit on the business of the global nature of the business of Tower.
Yeah. We are well represented geographically throughout the world. We have some very trusted customers, very good customer partners in China. I see that we will continue relationships. I believe we will do everything that is needed to support regulatory approvals.
Just for my follow-up, Peter, I was wondering how you're thinking about the STMicro partnership that Tower entered into last year, where they'll have access to about a third of the capacity from that fab in Italy that ST is bringing online. I think this speaks to the broader picture of how much the specific plans to scale and to add capacity for Tower, both organically and through these partnerships.
Hey, thank you. We are excited about the relationship with STMicro. I have also personally spoken to their CEO on the topic, and we expect that we are going to lean into that relationship. We are excited about the position that Tower has built with them, and that position in Italy we think is nicely complementary with our European strategy as well. We are excited to see the breadth of the global assets that Tower has in the U.S., Israel, Japan, as well as in Italy with STMicro. Anything that you would add, Russell?
No. I just say amen to what Pat has stated.
Very good. If we could then go to the last question.
Thank you. Our last question comes from Joe Moore with Morgan Stanley. You may proceed with your question.
Great. Thank you. It seems like a lot of the benefit of this deal is that you get a management team that's run a foundry business for the last couple of decades. Intel's relatively new to it. Can you talk about that in the context of what the structure of IFS will look like, how prominent Tower's going to be in terms of that, and sort of how you think about policies and procedures with IFS that predated the acquisition versus how this might affect you going forward?
Yeah. While some of this is premature to talk about in too much detail given the regulatory process, my expectation is that we will fully merge IFS and Tower into a single foundry business for Intel going forward. Part of the value and the synergy of the acquisition, as the question suggests, is to fully benefit from that decade of experience that Tower brings and how to run a global foundry customer-centric business for our customers for the future. Overall, we will lay out more of that integration strategy as we get to the time of deal closure. This will become one foundry business that will be the full integration of IFS today with Tower today.
Great. Thank you very much.
Thank you.
Congratulations.
Thank you very much. With that, I do want to thank everybody for joining us, particularly those on the West Coast at this very early hour. Thank you for your questions. I am excited because we have a big investor day coming up on Thursday of this week, and I am looking forward to seeing many of you in person for that time that we have this week. Thank you very much for joining us today.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.