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Intel has decided to terminate its plan to acquire contract chipmaker Tower Semiconductor, citing challenges in obtaining the necessary regulatory approvals within the anticipated timeframe.

The renowned chip giant initially unveiled its intention to purchase the Israeli company for $5.4 billion back in February of the previous year. This strategic move aimed to bolster Intel’s contract chip-making business by augmenting manufacturing capabilities and intellectual property, while also expanding its global presence.

In a bid to further these objectives, Intel had disclosed plans to invest $20 billion in the establishment of two new factories in Arizona approximately two years ago. This initiative coincided with the launch of Intel Foundry Services (IFS), a subsidiary dedicated to producing chips for external companies. This initiative, dubbed “IDM 2.0” by Intel CEO Pat Gelsinger, represented a comprehensive approach to semiconductor chip manufacturing, encompassing Intel’s existing factories, third-party facilities, and the growth of its nascent foundry services.

The pursuit of partnerships with established players in the foundry sector was aimed at expediting Intel’s ambitions. Tower Semiconductor, having manufactured analog chips for a diverse range of industrial clients for nearly two decades, presented itself as an ideal candidate for acquisition by Intel.

Challenges While Intel has not disclosed specific details regarding the regulatory challenges, notably in China and other regions, concerns had arisen over the past year regarding potential setbacks arising from resistance in China. Despite Gelsinger’s personal visits to the country in an effort to foster connections with both industry and government stakeholders, these efforts did not prove sufficient to finalize the deal.

Although there might have been a technical possibility of proceeding with the acquisition without Chinese approval, China is a significant component of Intel’s business and strategic outlook, making regulatory clearance from Chinese authorities indispensable.

Consequently, Intel has revealed that it will be liable to pay Tower Semiconductor a termination fee of $353 million. Following this news, Tower Semiconductor’s stock has experienced a decline of more than 11%.