The battle for global semiconductor leadership between the world's two economic superpowers has taken a new turn. Intel's recent decision to cancel its planned acquisition of Israeli-based chip maker Tower Semiconductor highlights China's determination to dominate the chip war against the United States. This development should serve as a wake-up call for American policymakers, urging them to take appropriate action.
On Wednesday, Intel (ticker: INTC) announced the mutual termination of its merger agreement with Tower Semiconductor (TSEM) due to the inability to obtain the necessary regulatory approvals within the expected timeframe. Although China was not explicitly named, it was evident that the country played a significant role as the primary obstacle.
For Intel, this setback is a minor one in relation to its Intel Foundry Services aspirations. While Tower would have provided valuable expertise in dealing with foundry customers, the overall impact of the deal was relatively small. Tower held a mere 1% market share in third-party chip manufacturing, whereas TSMC commanded a substantial 60% market share. Furthermore, Tower's focus was primarily on older chip technologies, such as analog semiconductors and industrial sensors, lacking the advanced chip-making capabilities that are crucial to Intel's offerings.
The more significant implication lies in China's exploitation of its antitrust review process to advance its national policy objectives. There is no economic justification for effectively blocking Intel's $5.4 billion deal for Tower while concurrently approving much larger mergers like Microsoft's acquisition of Activision Blizzard. This highlights China's strategic maneuvering to fulfill its own ambitions.
In this escalating battle for semiconductor supremacy, American policymakers must recognize the urgent need to respond appropriately, safeguarding their country's interests against China's growing leverage and influence. The outcome of this conflict will undoubtedly have far-reaching consequences for the global tech industry and the balance of power between these economic giants. Stay tuned for further updates on these developments.
Geopolitical Challenges and the Importance of the CHIPS Act
The geopolitical landscape is fraught with challenges, particularly when it comes to the semiconductor industry. The passing of the CHIPS and Science Act in the United States was a significant milestone aimed at ensuring reliable access to essential semiconductors. With these chips powering nearly every device, domestic chip manufacturing became an imperative to safeguard national security and protect the economy from potential supply chain disruptions.
Taiwan, with its 90% global share in producing advanced chips, presents a risk to the United States. As tensions with China escalate, it becomes increasingly crucial for the U.S. government to take decisive action to secure the success of the CHIPS Act.
While the Biden administration recently marked the first anniversary of the bill's enactment, there has been no disbursement of manufacturing subsidies as of yet. Urgency is paramount, as delays caused by bureaucracy and politically-driven conditions can easily jeopardize the timeline and industry funding. Already, private and public companies have announced substantial investments, potentially amounting to hundreds of billions of dollars for new semiconductor production factories in the U.S. However, these plans hinge on swift and effective implementation of the CHIPS Act by the Commerce Department.
Beyond financial considerations, there is also a pressing talent shortage in the industry. To address this, comprehensive immigration reforms are necessary to attract foreign workers with backgrounds in science, technology, engineering, and mathematics - individuals who possess the expertise needed to build chip factories.
Furthermore, it is essential to acknowledge China's perspective and its recognition of Intel as a key player in the success of the CHIPS Act. Intel, as the only American chip maker with the capacity and capabilities to manufacture cutting-edge chips on par with Taiwan, holds immense strategic importance. Therefore, it is incumbent upon the U.S. government to support Intel in expanding its foundry business, sparing no effort to ensure its success.
By tackling these challenges head-on and implementing the necessary measures, the U.S. can fortify its position in the semiconductor industry and safeguard its national security interests.
