Chip, China has cut the deal between Intel and Tower
Intel had to give up on acquiring the Israeli semiconductor company Tower due to lengthy authorizations in China. But what does Beijing have to do with the operations of an American company? Here are details, comments and predictions
US company Intel today announced that it has stopped acquiring Tower Semiconductor, an Israeli company that manufactures microchips, for failing to obtain the necessary approvals. It's unclear what specifically happened; we know, however, that the epilogue was caused by the Chinese antitrust regulator.
For breaking the terms of the agreement signed with Tower in February last year, Intel will pay a penalty of 353 million dollars. The operation was valued at 5.4 billion.
WHAT DOES CHINA HAVE TO DO WITH IT?
Anticipating the news by a day, Reuters reported on Tuesday that Intel had failed to obtain approval from Chinese authorities for the acquisition within the contractually stipulated deadline: the deadline was midnight on August 15th. As the New York Times explained, the merger between the two companies was approved by the US and European antitrust authorities, but in China – which examines the operations of companies that generate a certain amount of revenue in its territory – the authorization process was extremely long, until the scheduled times are exceeded.
Tower Semiconductor has an office in Shanghai. Intel, on the other hand, had revenues of $17 billion in China in 2022, 27 percent of the total.
ALL PLANS OF INTEL WITH TOWER
Tower Semiconductor is a small company compared to Intel and it's not even particularly advanced from a technological point of view, but it was nonetheless fundamental to the business restructuring plan launched by the US giant, which no longer wants to be just a microchip developer but also their concrete producer, in order to ride the current phase of geographical reorganization of critical industrial chains.
Tower manufactures components for very important customers such as Broadcom, for example; therefore, by acquiring Tower, Intel would also have appropriated its list of customers which would have made the difficult competition with TSMC , the most important Taiwanese company in the semiconductor manufacturing sector, a little easier.
Stacy Rasgon, an analyst at Sanford C. Bernstein, explained to Bloomberg that “overall, Intel's activities in the foundry sector [that's what chip factories are called in jargon, ed . ] would never have been easy even with Tower , but without it they could be even more challenging”.
GEOPOLITICS INFLUENCES BUSINESS DECISIONS
That the takeover might fail, however, was in the air. Both because Intel had repeatedly postponed the closing forecasts of the operation – by February 2023, then by the first quarter of the year, then by the second -, and both because the political tensions between the United States and China – Intel is a American company, based in California – they are strong, and they are strong in semiconductors in particular: Washington has imposed a whole series of international restrictions on the export of advanced technologies to Beijing, to prevent it from developing its own economy and military .
Also read: Why Bytedance, Baidu and more are stocking up on Nvidia chips
Before the Intel-Tower case, last year the American chemical company DuPont had already canceled a 5.2 billion deal for the acquisition of Rogers Corporation (also an American company of materials for electronics) due of the long authorization process in China.
As a result, multinational companies may increasingly be faced with a difficult choice: on the one hand maintaining their operations in the rich Chinese market, on the other the freedom to conduct mergers and acquisitions around the world. "Such concerns," wrote the New York Times, "could further cool foreign investment in China, which has already plummeted this year due to geopolitical concerns."
– Read also: Has China's economic engine stalled?
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/intel-tower-semiconductor-annullamento-accordo/ on Wed, 16 Aug 2023 13:44:14 +0000.