A plan by its larger Taiwanese rival GlobalWafers to buy German chip supplier Siltronic has collapsed after Berlin did not approve the deal, underscoring how national security concerns over the supply chain are affecting deals in the industry.

“GlobalWafers’ takeover offer and the agreement resulting from the offer will not be completed and will lapse,” the Taiwanese company said on Tuesday, after Germany did not make a decision on the deal by the Jan. 31 deadline.

Berlin’s failure to approve a proposed 4.35 billion euro deal has hampered the integration of key parts of the semiconductor’s long and complex supply chain.These chips are key components in a range of products, including cars and smartphones, and are already used in severe shortage more than a year.

GlobalWafers, the world’s third-largest silicon wafer maker, and Siltronic, the fourth-ranked, will become the second-largest in the industry and a serious competitor to Shin-Etsu, Japan’s largest manufacturer. In particular, GlobalWafers aims to strengthen its presence in Europe, where Siltronic is a major supplier.

The German economy ministry said it could not complete all the necessary steps in the review by January 31.German media lead A spokesman for the ministry said the conditional approval given by China’s antitrust regulator on Jan. 21 came too late for Berlin to review.

Chinese regulators have given the green light to the acquisition on the condition that GlobalWafers spin off Denmark-based Topsil and continue to sell wafers to Chinese customers on a non-discriminatory basis. In the case of a third country, these requirements may create complex operations for the combined company, such as the United States, impose sanctions requiring companies to cut supplies to China in the future.

But government officials and industry watchers have also pointed to broader factors in Berlin’s failure to pass the deal.In recent years, the German government has strengthened foreign acquisition Domestic companies, introducing security scrutiny into transactions in a range of industries, including semiconductors, and allowing the state to take stakes in companies if necessary to protect them.

“The real reason this is most likely to fail is Germany’s concerns about their technological sovereignty,” said a senior Taiwanese government official. “We understand these considerations, and they’re not the only ones that are increasingly focusing on these factors now. But this Makes our company’s global environment more complex as they seek to diversify their footprint.”

Taiwan dominates semiconductor manufacturing, mainly through TSMC, the world’s largest foundry chip maker, accounting for more than half of the global custom chip market. But the country is eager to improve its standing in other parts of the industry.

GlobalWafers said it was “very disappointed with this result”. The company added that it will analyze the German government’s decision and consider its impact on its future investment strategy.

CEO Doris Hsu has said in the past that GlobalWafers will invest outside Europe if the Siltronic deal fails to close.