By Aditya Soni and Yuvraj Malik
(Reuters) – A potential deal to buy Intel could accelerate Qualcomm’s diversification but would saddle the smartphone chipmaker with a loss-making semiconductor manufacturing unit that it may struggle to turn around or sell, analysts said.
A takeover would also face intense global antitrust scrutiny because it would combine two key chip companies in what would be the industry’s largest deal ever, creating a behemoth with a strong market share in the smartphone, personal computer and server markets.
Intel shares rose 3% before the close Monday, after media reported Friday night that Qualcomm had already begun investing in the struggling chipmaker. Qualcomm shares were down.
“The announced deal between Qualcomm and Intel is intriguing on many levels and, from a pure product perspective, makes some sense as they have a number of complementary product lines,” said Bob O’Donnell, founder of TECHnalysis Research.
“However, it is highly unlikely that this will actually happen. Furthermore, it is unlikely that Qualcomm wants all of Intel and trying to separate the product business from the foundry business right now would simply not be possible,” he said.
Once a dominant force in the semiconductor industry, five-decade-old Intel is going through one of its worst periods as losses mount at the contract manufacturing unit it is building in hopes of challenging TSMC.
Intel’s stock price fell below $100 billion for the first time in three decades as the company missed out on the generative AI boom after walking away from an investment in OpenAI.
At last close, its market capitalization was less than half that of its potential suitor Qualcomm, which is valued at about $190 billion.
Considering that Qualcomm had about $7.77 billion in cash and cash equivalents as of June 23, analysts expect the deal to be funded primarily with stock and would be highly dilutive to Qualcomm investors, likely prompting some apprehension.
Qualcomm, which also supplies Apple, has accelerated efforts to expand beyond its flagship smartphones to chips for industries including automobiles and PCs under Cristiano Amon. But the company remains overly reliant on the mobile phone market, which has struggled in recent years due to a post-pandemic drop in demand.
Amon is personally involved in negotiations with Intel and has been exploring different options for a deal for the company, sources told Reuters.
This is not the first time that Qualcomm has embarked on a major acquisition. In 2016, the group proposed to buy its competitor NXP Semiconductors for $44 billion, but abandoned the offer two years later, failing to obtain approval from Chinese authorities.
FOUNDRY RIDDLE
While Intel designs and manufactures the chips that power personal computers and data centers, Qualcomm has never operated a chip manufacturing plant. It relies on contract manufacturers such as TSMC and designers and other technology provided by Arm Holdings.
Qualcomm lacks the experience to grow Intel’s nascent foundry business, which recently named Amazon.com as its first major customer, analysts said.
“We don’t know why Qualcomm would be a better owner for these assets,” Bernstein’s Stacy Rasgon said.
“We don’t really see a scenario without them either; we don’t think anyone else would really want to use them and we think removing them is probably not politically viable,” he added.
Intel’s foundry business is seen as critical to Washington’s goal of expanding domestic chip production. The company has received about $19.5 billion in federal grants and loans under the CHIPS Act to build and expand factories in four U.S. states.
Some analysts have said Intel would prefer outside investment rather than a sale, pointing to a recent move to make the foundry business more independent.
Bloomberg News reported over the weekend that Apollo Global Management, already a partner in Intel’s Irish plant, has proposed an investment of up to $5 billion in the company.
Qualcomm could also decide to buy parts of Intel’s business, rather than the entire company. Reuters reported earlier this month that it was particularly interested in Intel’s PC design division.
(Reporting by Aditya Soni and Yuvraj Malik in Bengaluru; Additional reporting by Juby Babu in Mexico City and Seher Dareen and Utkarsh Shetti in Bengaluru; Editing by Sriraj Kalluvila)
