The US tech giant Intel announced on Wednesday the cancellation of its acquisition of the Israeli chipmaker Tower Semiconductor, demonstrating how the US-China technology rivalry is affecting Israel’s tech sector.
Intel said it mutually agreed with Tower Semiconductor to cancel the acquisition and will pay $353 million to the Israeli company. Tower Semiconductor said the two “received no indications regarding certain required regulatory approval” by the Tuesday deadline for the acquisition, according to statements from each firm.
Background: Intel is a Silicon Valley-based semiconductor chip manufacturer. Tower Semiconductor is based in northern Israel’s Migdal HaEmek and likewise makes semiconductor chips. These chips are electrical circuits that are widely used in computers, smartphones and related devices.
Intel agreed to purchase Tower Semiconductor last year in a $5.4 billion deal. Tower Semiconductor’s stock fell more than 10% by the close of trading on the Nasdaq on Wednesday, according to market data.
Why it matters: Multiple outlets reported that the deal fell through after the companies failed to obtain the necessary regulatory approval from Chinese authorities. Intel and Tower Semiconductor both have facilities in China.
The collapse of the deal comes amid the growing technology rivalry between China and the United States. The tensions have made obtaining approval for deals involving both countries difficult, particularly with regard to semiconductors, according to Bloomberg.
Semiconductors feature heavily in the US-China rivalry. Taiwan is the world’s largest semiconductor manufacturer, and China is increasingly threatening to invade the island despite US and international opposition.
Israeli journalist Omer Kabir wrote in the Israeli news outlet Calcalist on Wednesday that the demise of the Intel-Tower Semiconductor deal is a “peripheral casualty in the larger chip conflict that has been escalating between the US and China.”
The deal's collapse also complicates Intel’s plans to strengthen its foothold in Israel. Intel has a strong presence in Israel, and the Tower Semiconductor deal would have been its sixth acquisition of an Israeli firm in the past five years, according to The Times of Israel.
Carice Witte, the executive director and founder of the Israeli think tank SIGNAL Group, said that US companies with a large portion of their sales in China “will most likely think twice” about buying Israeli firms in the future. However, she said that such companies can adjust to the current climate and will learn from the collapse of the Intel-Tower Semiconductor deal.
“Companies are very creative. There are ways of maneuvering their businesses, ownership, base etc. to get what they want,” Witte told Al-Monitor. “Once they see this has happened, I think lot of corporate heads are going to learn from it.”
“It’s not a game changer. It’s another business hassle that corporations are going to need to look into and address. I don’t think it’s a serious negative for Israel,” she added.
Witte also pointed out that Tower Semiconductor is now free to expand into India. Reuters reported in June that a planned $3 billion semiconductor facility in India by a consortium in which Tower Semiconductor is a partner was stalled due to the then ongoing takeover by Intel. That takeover has now been cancelled.
The US views the Middle East as an area of concern with regard to China. In March, Assistant Secretary of State for Near Eastern Affairs Barbara Leaf told Al-Monitor that the United States will “protect” its technology as China’s cooperation with the Middle East grows.
Know more: Israel’s technology and infrastructure relations with China have caused tensions in the US-Israel relationship. The United States particularly opposed the opening of a port in 2021 in Haifa that is run by a Chinese firm.