Qualcomm has good reasons to bid for Intel — but a takeover probably won’t happen

Qualcomm is no newbie in Silicon Valley. It was founded in 1985, 39 years ago. Since then, it has grown into a company worth over $188 billion, specializing in areas such as wireless networks, smartphone processors, and modems.

But recent trouble brewing at Intel, a longtime chip designer and manufacturer, has apparently given Qualcomm reason to consider acquiring a company that has lost more than half its value this year and dropped to a market capitalization of just over $93 billion.

While some of its top competitors, like Nvidia, have soared to new heights as a result of the generative-AI boom, Intel has struggled to capitalize on investor interest in the technology. It has also grappled with production and strategy challenges.

The company took a serious tumble in August — a month in which it lost almost $30 billion in market value — after announcing the layoffs of 15,000 employees and a suspension of its dividend from the fourth quarter of this year.

It’s worth noting that Qualcomm’s talks to take over this troubled business are very early stage and exploratory. A person close to Qualcomm told the Financial Times that the company “would only pursue a friendly deal.”

Intel presents Qualcomm with pros and cons

For some, the logic to pursue the deal is apparent.

Speaking on CNBC last week, Patrick Moorhead, an industry analyst, said Intel’s exposure to key areas like data centers and the PC market, as well as its chip-manufacturing capabilities — which Qualcomm lacks as it outsources that process to Taiwan’s TSMC — meant there were “synergies in this.”

The company has also taken steps that seem to make it a more attractive purchase. Intel CEO Pat Gelsinger announced a set of drastic measures last week to bring change to the company that could set it on a brighter path.

He said these included a “multi-year, multi-billion-dollar” deal to work on custom chip designs with the tech heavyweight Amazon Web Services, a pause on plans to build plants in Europe, and the separation of its manufacturing unit, Intel Foundry, into its own entity.

That said, not everyone is convinced that Qualcomm needs Intel — or that a buyout would be a good idea for either company.

Richard Windsor, an equity-research analyst and the founder of Radio Free Mobile, thinks that while “it is possible to see how Qualcomm and Intel could fit together” — one company designs chips and the other has factories — a lot of Intel’s bits wouldn’t fit so well.

“The vultures are hovering around Intel and while Intel will make a tasty and nutritious meal for some, I think Intel would end up sticking in Qualcomm’s crop and give it a bad case of indigestion,” he wrote in a note on Monday.

He points to a few key reasons.

Intel’s x86 processors lag behind Qualcomm’s and its rival firm Arm’s offerings. Redesigning chips to be made by Intel “sounds like a risky proposition,” he said, given Qualcomm’s “already established excellent relationships” with manufacturers like Taiwan Semiconductor Manufacturing Co.

Ming-Chi Kuo, a Taiwan market analyst at the financial-services firm TF International Securities, went a step further, saying in a post over the weekend that a takeover of Intel could be “disastrous” for Qualcomm.

His rationale was that Qualcomm’s “most critical focus should be on establishing competitiveness in AI chips” for segments like smartphones and that he didn’t see an acquisition of Intel helping.

It could boost its position in the market for artificial-intelligence PCs, but the analyst said he thought Qualcomm already had a strong standing in that area, with its processors used in Microsoft’s Windows on Arm platform — a version of Windows running on Arm technology that Microsoft is committed to.

“While the acquisition of Intel could rapidly increase Qualcomm’s PC market share, it comes at a significant cost,” he wrote. “Qualcomm can grow in the AI PC market even without the acquisition.”

It’s also unclear how Qualcomm would find the cash to buy Intel. The company’s cash on hand is $13 billion, but even with its free cash flow, it still falls far short of Intel’s price.

And the impact on competition would likely spark alarm among regulators. A Qualcomm bid for Intel could face similar regulatory obstacles to Nvidia’s takeover attempt for Arm in 2020, which it abandoned in 2022.

Intel will, of course, want to consider its options. Bloomberg reported on Sunday that a new option was on the table after the investment giant Apollo offered to make a “multibillion-dollar investment” in the company.

That could offer the chip firm vital capital for its new plans and help it stand on its own two feet.