The $5.4 billion merger of Intel and Tower Semiconductor has been called off after Chinese regulatory approval was not secured.
The termination will cost Intel $353 million in fees - payable to Tower - and comes as Intel Foundry Services (IFS) has begun gaining customer traction, according to the chipmaker.
The deal was originally announced in February 2022 and formed part of Intel’s $20 billion Integrated Device Manufacturing (IDM) 2.0 vision. However, a lengthy wait for regulatory approval from China has resulted in the deal being called off.
Regulatory approval had already been gained in the US and Europe.
China and the US are currently at loggerheads over semiconductors, and US lawmakers have brought into force strict restrictions over the export of technology to China.
Gaurav Gupta, VP analyst at Gartner, told ITPro that the issues around approval were likely a consequence of the US’ restrictions.
Back in February 2022, when the deal was first announced, Gupta said that the hope was that trade friction between the superpowers would ease somewhat. However, the opposite has turned out to be the case, and this deal has become a high-profile casualty.
Gupta also warned of a chilling effect across the industry as companies considered their options where approval in China was required.
“This will make companies think before they pursue any other M&A,” he said.
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“Because they know you don't want to invest 18 to 24 months in a deal and then find out it's not coming through.”
Tower Semiconductor, an Israeli company, thanked all parties for their efforts to secure an agreement.
Russell Ellwanger, CEO at Tower Semiconductor, said: “Tower was very excited to join Intel to enable Pat Gelsinger’s vision for Intel’s foundry business”.
The parties had 18 months in which to complete the deal, and as 15 August 2023 passed with no indication of imminent approval, the companies agreed to terminate the agreement.
Pat Gelsinger, CEO of Intel, paid tribute to Tower Semiconductor before insisting that the company is on-track to “regain transistor performance and power performance leadership by 2025”.
While that 2025 goal is unlikely to be substantially affected by the termination of this deal, Intel may be disappointed that 18 months of negotiations have borne little fruit.
Intel has been focused on leading edge nodes, and the Tower acquisition would have given it access to mature nodes and the customer experience to support them. Mature process nodes produce huge amounts of simple chips that require little in the way of updates and stay in use for decades.
To offer customers a complete service, IFS must support more than just leading edge nodes.
In its most recent earnings figures for Q2 2023, Intel reported a 15% decrease in year-on-year revenue, although it still exceeded the higher end of guidance, according to the company.
While Gelsinger praised the year-on-year growth of the IFS business unit, which amounted to more than 300%, its $232 million performance was still far behind the company’s other units. Mobileye, for example, reported $454 million in revenue for the same period.
Despite the termination of the merger agreement, Intel has been investing in IDM 2.0.
It expects to invest up to $4.6 billion in a new semiconductor assembly and test facility in Wroclaw, Poland, and has also signed a letter of intent with the German Federal Government for the company’s wafer fabrication site in Mageburg, Germany.
