A POTENTIAL deal to buy Intel could accelerate Qualcomm’s diversification, but will burden the smartphone chipmaker with a loss-making semiconductor manufacturing unit that it may struggle to turn around or sell, analysts said.
A buyout will also face tough antitrust scrutiny globally as it would unite two crucial chip companies in potentially the sector’s biggest ever deal, creating a behemoth with a strong share of the smartphone, personal computer and server markets.
Shares of Intel rose 3 per cent before the opening bell on Monday (Sep 23), after announcements late last Friday about Qualcomm’s early-stage approach for the struggling chipmaker. Qualcomm’s shares were lower.
“The rumoured deal between Qualcomm and Intel is intriguing on many levels and, from a pure product perspective, makes a certain degree of sense as they have a number of complementary product lines,” said TECHnalysis Research founder Bob O’Donnell.
“The reality of it actually occurring, however, is very low. Plus, it is unlikely Qualcomm would want all of Intel and trying to break apart the product business from the foundry business right now just would not be possible,” he said.
Once the dominant force in the semiconductor industry, five-decade-old Intel is facing one of its worst periods. Losses have been mounting at the company’s contract manufacturing unit, which it built to challenge Taiwan Semiconductor Manufacturing Company (TSMC).
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Intel’s market value fell below US$100 billion for the first time in three decades, as the company missed out on the generative artificial intelligence boom after passing on an OpenAI investment.
As of last close, its market capitalisation was less than half that of potential suitor Qualcomm, which has a value of about US$190 billion.
Considering Qualcomm had about US$7.8 billion in cash and cash equivalents as of Jun 23, analysts expect the deal will mostly be funded through stock, and would be highly dilutive for Qualcomm’s investors, likely raising some apprehension.
Qualcomm, which also supplies to Apple, has quickened its efforts to expand beyond its mainstay smartphone business, under chief executive officer Cristiano Amon, with chips for industries including cars and PCs.
But it still remains overly reliant on the mobile market, which has struggled in recent years due to the post-pandemic demand slump.
Amon is personally involved in the Intel negotiations, and has been examining various options for a deal for the company, sources said.
This is not the first time Qualcomm is pursing a large acquisition. It offered to buy rival NXP Semiconductors for US$44 billion in 2016, but abandoned the bid two years later after failing to secure a nod from Chinese regulators.
Intel designs and manufactures its chips, which power PCs and data centres. Conversely, Qualcomm has never operated a chip factory. It uses contract manufacturers such as TSMC.
Qualcomm lacks the experience needed to ramp up Intel’s fledgling foundry business, which recently named Amazon.com as its first major customer, noted analysts.
“We do not know why Qualcomm would be a better owner for those assets,” said Stacy Rasgon of Bernstein.
“We do not really see a scenario without them either; we do not think anyone else would really want to run them and believe scrapping them is unlikely to be politically viable,” he added.
Intel’s foundry business is seen as crucial to Washington’s goal of growing domestic chip manufacturing.
The company has secured about US$19.5 billion in federal grants and loans under the Chips Act to build and expand factories across four US states.
Some analysts said Intel would prefer outside investments instead of a sale, pointing to a recent move to make the foundry business more independent.
It was reported over the weekend that Apollo Global Management, already a partner in Intel’s Ireland facility, has offered an investment of as much as US$5 billion in the company.
Qualcomm could also decide to buy parts of Intel’s business instead of the entire company. Reuters reported earlier this month that the company had a particular interest in Intel’s PC design unit. REUTERS