Qualcomm could acquire rival Intel – but it won't be easy

Qualcomm and Intel logos on device screens

(Image credit: NurPhoto / Contributor)

published 1 October 2024

Shares in Intel jumped by 8% last week following reports that chipmaker Qualcomm had approached its struggling rival about a potential takeover, says the Financial Times. A deal is “far from certain” and no formal offer has been made, but a tie-up would eclipse Microsoft’s $69 billion acquisition of Activision as the biggest technology deal on record. Intel’s share price has halved this year, putting the company on the defensive.

Such a deal would be a “massive coup” for Qualcomm, which re-entered the desktop processor market this year as a part of Microsoft’s artificial intelligence (AI) PC strategy after “years of dominance in mobile processors”, say Richard Lawler and Sean Hollister in The Verge.

By contrast, Intel is “arguably in its weakest position in years”, with the company recently announcing big cuts, strategic shifts and a 15% downsizing of its workforce this August after reporting a $1.6 billion loss in the second quarter of 2024. The group later announced that it would spin off its chip-making business, “a part of the company that it had long touted as a strength over rival AMD”.

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What hurdles is Qualcomm facing?

The “yawning gap” between their market values, with Qualcomm worth double Intel’s value, gives Qualcomm an “opening” to pull off a deal, says Bloomberg’s Chris Hughes. It would help Qualcomm diversify its business.

However, many obstacles to a successful transaction remain, not least the fact that neither Intel’s management nor its shareholders will be willing to “play ball” when the share price is “on its knees” unless there is “a very high premium or certain value creation on offer through trading into the enlarged company”. What’s more, asset sales will be required to assuage antitrust regulators – they would probably take place at “fire-sale” prices.

While Qualcomm would probably be required to sell off parts of Intel’s business to deal with antitrust concerns, it would probably also be forced to continue to “shovel ever-more money” into Intel’s manufacturing operations, says Robert Cyran for Breakingviews. These have become a “money pit”, generating $4.2 billion of revenue last quarter but losing $2.8 billion. The US government has made these operations “a cornerstone of its chip strategy, awarding Intel billions in subsidies”. Overall, while Intel’s lower valuation clearly has Qualcomm (and others) “salivating”, this “isn’t the screaming deal it might seem.

Any buyer would need the ability to “solve multiple existential threats” while also “getting such a deal through regulators that would include China”, says Dan Gallagher in The Wall Street Journal. But “questionable deals still have a way of happening”.

No wonder then, that Intel, even in its “current predicament”, is “drawing all types of interest”. For instance, distressed investment specialist Apollo Global Management has offered to buy an equity stake of up to $5 billion, which could be a more plausible scenario than a deal with Qualcomm given Intel’s cash needs and “less likelihood of regulatory hurdles”.

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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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