China effectively aborted a $5.4 billion deal with Silicon Valley semiconductor giant Intel, in the latest sign of strained trade relations between China and the United States.
Intel, which has long had operations in China, said Wednesday that it had “mutually agreed” to finalize a planned merger with Tower Semiconductor, the Israeli chipmaker. The announcement came after China’s antitrust regulators failed to rule on the deal before a deadline set by the companies.
Intel’s failure to complete the Tower acquisition could further chill American companies with deep ties in China, as it has become increasingly difficult to do business amid tensions between the two countries.
The planned merger, announced in February 2022, has passed antitrust review in the United States and several other geographies. But it has faced a long delay in China, where regulators review mergers of companies that generate a certain amount of revenue in the country.
Technology is the main battlefield in the tense economic relations between China and the United States.
Beijing is deeply troubled by the US-led set of international restrictions on China’s sale of the most advanced computer chips, which have military applications, and factory equipment to make such chips. These restrictions were put in place in October. In a separate action, President Biden last week ordered a ban on some new investments in sensitive Chinese technology.
China has condemned these steps as an attempt by Washington to stifle its technological development and slow its economic growth.
Despite the initial tensions between the two countries, their economies are still highly interdependent, dependent on each other’s supply chains, technology, and investment funds.
For Intel, China is a key market and place for business: In 2022, the company will employ more than 12,000 people there, and generate more than $17 billion in revenue, about 27 percent of its global total. It began doing business in China in the mid-1980s, with operations including assembly and testing of chips manufactured elsewhere.
Intel, which has been struggling to regain its leadership in chip production technology, hopes the merger with Tower will help speed up the transition to becoming a major manufacturer for other chip designers. Previously, Intel used its factories mainly to produce chips that it designed and sold.
Tower, which has an office in Shanghai, was founded in 1993 and operates a relatively small chip manufacturing service compared to giants such as Taiwan Semiconductor Manufacturing Company. Intel will pay the tower $353 million for failing to close the deal, according to a statement from Intel.
Intel’s inability to obtain merger approval in China underscores what can become an increasingly difficult choice for multinational companies: They may need to choose between doing operations in China or carrying out mergers and acquisitions around the world. Such concerns could further cool foreign investment in China, which has already fallen this year due to geopolitical concerns.
Han Xinlin, country director for China, told Asia Group, a consulting firm in Washington.
Prior to the establishment of the agency in 2018, global mergers in China were mainly reviewed by a unit of the Ministry of Commerce, which is dominated by civil servants with extensive international experience and contact with foreign companies and governments.
By contrast, the State Administration for Market Regulation within the Chinese bureaucracy is classified primarily as a domestic agency, and its officials have avoided most contacts with foreign governments, embassies, or companies.
Patrick Gelsinger, who became Intel CEO in early 2021, has sought to add what the industry calls chip foundry services, in part to attract US government subsidies under legislation passed a year ago. He recently traveled to China to help approve the tower deal.
“We continue to move forward on all aspects of our strategy,” Mr. Gelsinger said in a statement on Wednesday.
Intel Manufacturing Plants, or fabs, tend to specialize in the advanced production processes used to make microprocessors and other digital chips. By contrast, the tower is known for the ancient technology that produces analog chips, which are used in functions such as signal amplification and power management in cell phones and other products.
The company now has two turnkey manufacturing plants in Israel, two in the United States, three in Japan and participates in a manufacturing joint venture in Italy.