23/02/2024
The Chips Are Down as Intel Faces Proposal
This week’s key terms/concepts:
• Asset Purchase Agreement: A contract for acquiring specific assets of a foreign business rather than its shares.
• Supply Chain Security: The management of risks associated with external suppliers, vendors, logistics and transportation in the supply chain.
• Market Dominance: The extent to which a company holds significant control over an industry, potentially leading to monopolistic behaviour.
Last week, the executive chairman of Intel, Frank Leary, faced recent acquisition bids from Taiwan Semiconductor Manufacturing Company (TSMC), one of the biggest microchip producers in the world. The proposed deal would grant TSMC to acquire control of the American tech company’s chip manufacturing plants, with the Taiwanese company already producing around 90% of the world’s most advanced semiconductors.
Why is this significant?
The potential partnership aims to help Intel recover from its ongoing financial struggles. Despite having a long-standing dominance in the tech industry, Intel has lost its competitive foothold in chip manufacturing. In the final quarterly report for 2024, Intel reported a loss of $18.8 billion, marking its third consecutive year of declining revenue for the company.
This news follows the backdrop of the CHIPS and Science Act, enacted during Biden’s administration in 2022, which allocated $39 billion in direct incentives to support U.S semiconductor manufacturing. This included a roughly $7.9 billion grant to Intel, contingent on the company’s commitment to invest tens of billions of dollars by the end of the decade or expanding its factories.
What does this mean within the legal sector?
If the TSMC acquisition proceeds it could trigger national security reviews, with lawmakers in the U.S. potentially objecting if they believe that it would increase dependency on foreign chipmakers. Compliance with laws such as the CHIPS Act and export control regulations would also be a key consideration. The grant that Intel received from the Act stipulates that Intel must retain a majority stake in any new entity formed from its factories, meaning any acquisition could potentially nullify this agreement.
Additionally, multiple regulatory bodies, including the U.S. Federal Trade Commission and China’s State Administration for Market Regulation would have to be consulted. The potential breakup of Intel has ignited antitrust concerns, given the importance of semiconductor production. Regulators in both the US and China will have to conduct antitrust reviews and assess any potential negative impacts on market competition.
Currently, there is no confirmed timeline for the acquisition, but there is indication that the U.S. President might be reluctant for a foreign manufacturer to supply crucial microchip components.
Lex Weekly 