Intel Corporation, the world’s largest chipmaker, announced on Wednesday that it has mutually agreed with Tower Semiconductor, an Israeli contract chipmaker, to terminate their previously disclosed agreement to acquire Tower for $5.4 billion. The reason for the cancellation was the inability to obtain the required regulatory approval from China in a timely manner.
The deal, which was announced in February 2022, would have given Intel access to Tower’s specialty technologies, such as radio frequency and industrial sensors, and expanded its newly formed foundry business that makes chips for other companies. However, the deal faced regulatory hurdles in China, where tensions with the US over trade, intellectual property and Taiwan have increased.
Intel said in a statement that it will pay a termination fee of $353 million to Tower as per the terms of the merger agreement. Tower said that it has made significant technological, operational and business advancements during the past 18 months and that it is well positioned to continue to drive its strategic priorities and growth.
Investors react negatively to the news
The news of the deal’s failure was not well received by the investors of both companies. Tower’s Nasdaq-listed shares fell 8% on Wednesday, while Intel’s shares dropped 0.6%. Tower’s shares had already declined 22% this year, as investors had given up hope on the deal’s completion. Tower’s shares closed at $33.78 on Tuesday, far below the $53 per share that Intel had offered.
Analysts also expressed disappointment over the deal’s termination, saying that it would be a setback for Intel’s foundry ambitions. Stacy Rasgon, an analyst at Sanford C. Bernstein, wrote in a research note that “a failed deal does seem modestly disappointing for the prospects of Intel’s foundry efforts” and that “overall Intel’s foundry efforts were never going to be easy even with Tower, but now may prove to be even more challenging without.”
Intel’s CEO Pat Gelsinger had said that he was trying to get the Tower deal approved by Chinese regulators and had visited the country as recently as last month to meet with government officials. However, he also said that Intel was investing in its foundry business irrespective of the Tower deal. In June, Israeli Prime Minister Benjamin Netanyahu announced that Intel had agreed to spend $25 billion on a new factory in Israel, the largest-ever international investment in the country.
Intel faces fierce competition in the chip industry
The deal’s collapse comes at a time when Intel is facing fierce competition from its rivals in the chip industry, such as Taiwan Semiconductor Manufacturing Co (TSMC), Samsung Electronics Co and Nvidia Corp. TSMC is the leader in the foundry market, where it makes chips for clients such as Apple Inc, Qualcomm Inc and Advanced Micro Devices Inc (AMD). Samsung is also a major player in the foundry market, as well as a competitor to Intel in memory chips.
Intel has been struggling to keep up with its rivals in terms of innovation and manufacturing capabilities, as it has faced delays and technical issues in developing its next-generation chips. Intel has also lost market share to AMD in the PC and server markets, where it used to dominate. Nvidia, meanwhile, has surpassed Intel in market value and has become a leader in artificial intelligence and graphics chips.
To regain its competitive edge, Intel has announced a series of initiatives under Gelsinger’s leadership, such as investing $20 billion to build two new factories in Arizona, launching a new chip architecture called Alder Lake, partnering with IBM to research new chip technologies and creating a new business unit called Intel Foundry Services (IFS) to offer its manufacturing capabilities to other companies.
However, these initiatives will take time to bear fruit and face significant challenges from Intel’s rivals. For example, TSMC has announced plans to invest $100 billion over the next three years to expand its production capacity and technology leadership. Samsung has also committed to invest $116 billion by 2030 to boost its chip business. Nvidia has announced a $40 billion deal to buy British chip designer Arm Ltd, which could give it access to a vast network of customers and partners.
Therefore, Intel will have to work hard to regain its position as the world’s leading chipmaker and prove that it can deliver on its promises.