Intel Drops $5.4 Billion Tower Semiconductor Deal. It’s a Blow to Chip Strategy.

China’s antitrust regulator, the State Administration for Market Regulation, hadn’t approved the deal by Tuesday’s deadline. A merger triggers an antitrust review in China if two companies in a deal have annual revenue of more than $117 million from the country.

Chinese regulators haven’t commented on the deal publicly but it wasn’t the first time they have failed to approve a semiconductor merger involving an American company.

Qualcomm

 (QCOM) scrapped its planned $44 billion purchase of Dutch chip maker 

NXP Semiconductors

 (NXPI) in 2018 after it failed to gain Chinese approval by the deal’s deadline. 

“With increased tensions and a multitude of microaggressive policies between Washington and China, a deal like Intel’s acquisition of Tower became increasingly unlikely,” said Daniel Newman, founder of technology research firm Futurum.

Intel will now have to pay a $353 million termination fee to

Tower Semiconductor

(TSEM) under the terms of their merger agreement. A more painful consequence could be the blow to Intel’s plans to build up its business making chips on contract for others via its Foundry Services unit.

Intel has prioritized its Foundry Services unit under CEO Pat Gelsinger, aiming to provide a domestic alternative to

Taiwan Semiconductor Manufacturing

(TSM). The acquisition of Tower Semiconductor would have added people with long experience in the sector, along with manufacturing facilities in Israel, the U.S. and Japan.  

Tower Semiconductor’s factories specialize in making chips using larger and older ‘nodes’ – a categorization of the size of the circuitry on a chip. “Tower’s specialty and legacy nodes would have given Intel a broader set of capabilities in its own growing foundry strategy,” Futurum’s Newman said.

Tower Semiconductor’s U.S.-listed shares were down 8% at $31.07 on Wednesday morning. Intel stock had fallen 1.1%.

“We are executing well on our road map to regain transistor performance and power performance leadership by 2025, building momentum with customers and the broader ecosystem,” Intel’s Gelsinger said in a statement. 

He added that Intel would continue to look for opportunities to work with Tower Semiconductor in the future.

Write to Adam Clark at [email protected]