China has effectively blocked a $5.4 billion deal between Intel and Tower Semiconductor, signaling the strained business ties between the two countries. Intel announced on Wednesday that it had mutually agreed to terminate the planned merger after China’s antitrust regulators failed to rule on the transaction within the companies’ deadline. This failure by Intel could have a chilling effect on other American companies with strong ties to China, as tensions between the two nations make it increasingly challenging to do business.
The planned merger, announced in February 2022, had received antitrust approval in the United States and other jurisdictions. However, it faced significant delays in China, where regulators review mergers involving companies that generate a certain amount of revenue within the country.
The tension between China and the United States extends into the realm of technology, where restrictions on the sale of advanced computer chips with military applications and the equipment to manufacture them have deeply upset Beijing. In addition, President Biden recently imposed a ban on certain new investments in sensitive Chinese technology. China has condemned these actions as attempts to hinder its tech development and economic growth.
Despite the strained relations, the economies of both countries remain highly interconnected, relying on each other’s supply chains, technology, and investment. For Intel, China is a significant market and place of business, with over 12,000 employees and more than $17 billion in revenue in 2022, accounting for about 27% of its global total. Intel has been operating in China since the mid-1980s, engaging in activities such as chip assembly and testing.
The failed merger with Tower was expected to help Intel in its efforts to become a major manufacturer for other chip designers as it seeks to regain a lead in chip production technology. Intel has traditionally focused on producing chips it both designs and sells in its own factories. Tower, on the other hand, operates a relatively small chip manufacturing service compared to giants like Taiwan Semiconductor Manufacturing Company.
Intel will pay Tower $353 million for the failed deal. The company’s inability to gain approval in China highlights the dilemma faced by multinational corporations, who may have to choose between operating in China or pursuing mergers and acquisitions worldwide. This concern could further dampen foreign investment in China, which has already declined due to geopolitical tensions.
The State Administration for Market Regulation, the Chinese government agency responsible for approving global mergers, now finds itself under scrutiny as a reflection of China’s commitment to market access for foreign investors. The agency was established in 2018, taking over global merger reviews from a unit in the Ministry of Commerce that had extensive international experience and contacts with foreign businesses and governments.
Unlike its predecessor, the State Administration for Market Regulation is primarily a domestic agency, with officials who have limited contact with foreign governments, embassies, or businesses. Intel’s CEO, Patrick Gelsinger, has been working to expand the company’s chip foundry services to attract government subsidies, including those provided under recent legislation. Gelsinger visited China to support the approval of the Tower deal.
Intel’s fabrication plants specialize in advanced production processes for microprocessors and digital chips, while Tower is known for its expertise in older technology for analog chips used in tasks like signal amplification and power management in devices like cellphones. Intel currently owns fabs in Israel, the United States, Japan, and participates in a joint manufacturing venture in Italy.
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