Chinese regulator delaying Intel-Tower deal

Intel’s acquisition of the Israeli chipmaker Tower Semiconductor Limited. (NASDAQ: TSEM; level:TSEM) for $5.4 billion, which was announced early last year, is still awaiting completion. In January 2023, Intel announced that the completion of the deal would be delayed until before the end of June 2023 as the escalating chip war between the US and China cast a shadow over whether the Chinese regulator would approve the deal.

Uncertainty about approval of the deal is only increasing. Intel didn’t mention the merger in its first-quarter financial report, but CEO Pat Gelsinger made a general and unflattering statement about continuing talks with the Chinese after his visit to the country. Now, Intel has only two months left to receive Chinese approval, unless it is again delayed, or even cancelled.

At the start of 2023, there were reports that the Chinese regulator had called off talks in December, which saw Tower’s share price drop 14% between January and March 2023.

At the beginning of April, Intel’s top executives met with senior Chinese government officials for talks, and Gelsinger even traveled to China to discuss the issue of supply chain stability in the chip industry with Chinese Minister of Commerce Wang Wentao. The talks may have centered on Chinese concerns that the US administration plans to block Intel from supplying chips to Chinese manufacturers, such as Huawei. They also worry about the ongoing setback in building chip manufacturing plants in Asia, and are particularly angry at bans on the sale of production machinery and technologies that prevent the Chinese from producing complex, high-level chips — such as those marketed by Intel.

The Chinese also fully understand Intel’s dependence on them. China was the US chip maker’s largest market last year — 27% of its revenue, or $21.1 billion. Now, Intel intends to pay cash. During Gelsinger’s visit to China, technology news site The Register reported that Intel would supply dedicated graphics processors to China that fall within the guidelines allowed by the US government.

Meanwhile, investors are optimistic that the deal will be completed. The tower’s share price is up 3% and is close to the same level it was when the acquisition was announced at the beginning of 2023, after Gelsinger commented on continuing talks with the Chinese regulator.

“Judging by past experience, the Chinese tend to approve deals by American companies, but on the other hand, the two superpowers were not in conflict as they are today. I have no doubt that they are,” technology analyst Psagot Shahar Karmi told Globes. “They are biding their time, while flexing their muscles in another area of ​​technology. The Chinese asked to examine alleged vulnerabilities found in US company Micron products earlier this year. But the assessment is that the Intel Tower deal will be approved.”

In the least likely scenario of the deal being cancelled, Intel would be required to pay Tower a fine of $353 million and lose several percent of its value. But the damage to its reputation will be more costly. The tower is a central building block in Intel’s strategy to reposition itself as a manufacturing enterprise for the chip industry.

Canceling the deal may mean that Intel will have to seek a new acquisition in this area. For Tower, the cancellation of the takeover would be no less dramatic and Carmi estimates that in such a scenario, the Israeli company would lose 25% of its value.

Published by Globes, Israel business news – en.globes.co.il – on April 30, 2023.

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