Intel Corp. is facing a setback in its plans to acquire Israeli contract chipmaker Tower Semiconductor. The $5.4 billion deal has been reversed after the merger agreement expired without receiving regulatory approval from China. Instead, Intel will now pay a termination fee of $353 million. This development highlights the strained relationship between the United States and China, and raises questions about the future of trade, intellectual property, and the role of Taiwan.
Intel CEO Pat Gelsinger has been actively seeking approval from Chinese regulators, but their silence on the matter has led to the termination of the deal. In the meantime, Intel has been focusing on its foundry business, which has seen significant growth. Chip demand for Intel has been declining, and the company plans to cut costs by $3 billion this year, with a long-term goal of saving between $8 billion and $10 billion by the end of 2025. Despite these challenges, Intel recently made headlines by announcing plans to build a new $33 billion chip plant in Germany, with support from the government. It seems that Intel is navigating a complex landscape of global partnerships and investments, while also dealing with the impact of geopolitical tensions on its business operations.
Intel Cancels $5.4 Billion Deal to Acquire Tower Semiconductor
Intel Corp. has decided to reverse its plans to acquire Israeli contract chipmaker Tower Semiconductor in a $5.4 billion deal. This decision comes after the merger agreement expired without receiving regulatory approval from China. Instead, Intel will pay a termination fee of $353 million, according to a statement released by the company. The termination of the deal reflects the strained relationship between the United States and China, which has been plagued by conflicts over trade, intellectual property, and the future of Taiwan.
Regulatory Approval Delays Lead to Termination
Both Intel and Tower Semiconductor have agreed to terminate their merger agreement, citing the lack of indications regarding the required regulatory approval. The agreement had a deadline of August 15, 2023, which has now passed without the necessary approval. Intel CEO Pat Gelsinger had been making efforts to get the deal approved by Chinese regulators, including meeting with government officials in July. However, the approval did not materialize, leading to the cancellation of the deal.
Focus on Foundry Business and Cost Reductions
While the deal with Tower Semiconductor fell through, Intel is investing in its foundry business, which manufactures chips for other companies. In the second quarter, the foundry business reported revenue of $232 million, a significant increase from $57 million in 2022. This investment is part of Intel’s strategy to diversify its revenue streams and reduce reliance on its own chip sales.
In addition to focusing on its foundry business, Intel is committed to trimming $3 billion in costs this year. The company aims to save between $8 billion and $10 billion by the end of 2025. This cost-cutting initiative comes as chip demand for Intel has declined after two years of growth driven by the remote work trend during the pandemic.
Intel’s Stock Performance and Future Investments
On Wall Street, Intel’s shares have seen a decline of approximately 1.10% in the last month. However, the company has announced plans to build a new $33 billion chip plant in Germany with the help of government support. This investment in Germany highlights Intel’s commitment to expanding its manufacturing capabilities and strengthening its presence in key markets.
In June, Intel also made headlines when Israeli Prime Minister Benjamin Netanyahu announced that the company would invest $25 billion in a new factory in Israel. This marked a record-breaking amount of international investment in the country, further solidifying Intel’s commitment to innovation and growth.
In conclusion, Intel’s decision to cancel the acquisition of Tower Semiconductor reflects the challenges faced in obtaining regulatory approval from China. Despite this setback, Intel remains focused on its foundry business, cost reductions, and future investments in Germany and Israel. As the semiconductor industry continues to evolve, Intel is adapting its strategies to stay competitive and drive long-term success.
