Intel Corp, the world’s largest chipmaker, has decided to drop its $5.4 billion deal to acquire Tower Semiconductor Ltd, an Israeli contract chipmaker, after failing to get regulatory approval from China, Reuters reported on Tuesday.

Intel, which announced the deal to buy Tower in February 2022, did not receive clearance from Chinese regulators by the deadline of August 31, 2023, as required under the contract, the sources said, speaking on condition of anonymity ahead of an official announcement.

The deal was aimed at boosting Intel’s capacity and capabilities in the fast-growing market of foundry services, where chipmakers manufacture chips for other companies. Tower is one of the leading players in this segment, with customers such as Apple Inc, Qualcomm Inc, and Nvidia Corp.

The deal was also seen as a strategic move by Intel to strengthen its presence and influence in the Middle East, where Tower operates three chip plants in Israel and one in Jordan.

However, the deal faced regulatory hurdles in China, where Tower also has a joint venture with a Chinese state-owned company. China is a major market for both Intel and Tower, and also a key competitor in the global chip industry.

China has been tightening its scrutiny over foreign acquisitions of its domestic companies and assets, especially in the technology sector, amid rising tensions with the United States over trade and security issues.

Intel and Tower declined to comment on the matter. The sources said that Intel and Tower will continue to cooperate as business partners and explore other opportunities for collaboration in the future.

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