This acquisition would likely attract significant antitrust scrutiny on a global scale, as it would merge two pivotal chip manufacturers in what would become the largest transaction in the industry, resulting in a giant with considerable market shares in smartphones, personal computers, and servers.
On Monday, Intel's shares (INTC.O) rose by 3% in pre-market trading following reports late Friday about Qualcomm’s initial outreach to the struggling chipmaker. In contrast, Qualcomm’s shares (QCOM.O) experienced a decline.
Bob O'Donnell, founder of TECHnalysis Research, remarked, The speculated acquisition between Qualcomm and Intel is fascinating on multiple fronts and, from a product standpoint, holds a degree of logic due to their complementary product offerings.
However, he added, The likelihood of this actually materializing is quite low. Additionally, it seems improbable that Qualcomm would seek to acquire all of Intel, and attempting to separate the product division from the foundry operations at this stage would be unfeasible.
Once a leading entity in the semiconductor sector, the 50-year-old Intel is currently experiencing one of its most challenging phases as losses accumulate in the contract manufacturing segment, which it is expanding to compete with TSMC (2330.TW).
Intel’s market capitalization has fallen below $100 billion for the first time in 30 years, particularly after missing out on the generative AI surge due to declining an investment in OpenAI.
At its last closing, Intel's market cap was less than half that of Qualcomm, which is valued at approximately $190 billion.
Given that Qualcomm held around $7.77 billion in cash and cash equivalents as of June 23, analysts anticipate that the acquisition would primarily be financed through stock, likely resulting in substantial dilution for Qualcomm’s investors, potentially raising concerns.
Under the leadership of CEO Cristiano Amon, Qualcomm, which also supplies Apple, has intensified efforts to diversify beyond its core smartphone segment, developing chips for sectors such as automotive and personal computing. Nonetheless, it continues to depend heavily on the mobile market, which has faced challenges in recent years due to a decline in demand post-pandemic.
Sources have informed Reuters that Amon is directly involved in the Intel discussions and is exploring various options for a potential deal.
This is not Qualcomm’s first pursuit of a significant acquisition; in 2016, it attempted to acquire rival NXP Semiconductors (NXPI.O) for $44 billion but withdrew the offer two years later after failing to gain approval from Chinese regulators.
FOUNDRY CONUNDRUM
Intel is responsible for designing and manufacturing the chips that drive personal computers and data centers, whereas Qualcomm has never operated its own chip fabrication facility. Instead, Qualcomm relies on contract manufacturers like TSMC and utilizes designs and technologies provided by Arm Holdings.
Analysts suggest that Qualcomm does not possess the necessary experience to accelerate Intel's nascent foundry operations, which recently designated Amazon.com as its first significant client.
Stacy Rasgon from Bernstein stated, We are unclear on why Qualcomm would be a more suitable owner for these assets.
He further noted, We do not envision a scenario without them; it appears that no one else would be inclined to manage them, and we consider it improbable that they would be scrapped for political reasons.
Intel's foundry division is viewed as essential for the U.S. government's initiative to enhance domestic chip manufacturing. The company has obtained approximately $19.5 billion in federal grants and loans through the CHIPS Act to establish and expand production facilities in four states across the U.S.
Some analysts believe Intel might favor external investments over a sale, highlighting a recent strategy to increase the independence of its foundry business.
Bloomberg News reported recently that Apollo Global Management, which is already a partner in Intel's facility in Ireland, has proposed an investment of up to $5 billion in the company.
Additionally, Qualcomm may consider acquiring specific segments of Intel's operations rather than the entire company. Earlier this month, Reuters indicated that Qualcomm showed particular interest in Intel's PC design division.
