Qualcomm-Intel Merger Talks Raise Antitrust Concerns; Analysts Question Viability

Qualcomm is reportedly considering a significant move to acquire Intel, a deal that could hasten its diversification efforts but also saddle the company with a struggling semiconductor manufacturing unit. According to Reuters, analysts caution that the potential acquisition would be challenging for Qualcomm, particularly as Intel’s contract manufacturing unit has been incurring losses, which Qualcomm may find difficult to either turn around or sell.

In addition to the operational challenges, the deal would likely face intense scrutiny from antitrust regulators around the world, as it would combine two of the largest players in the chip industry. If approved, it would represent the largest deal in the semiconductor sector’s history, merging two companies with dominant positions in smartphone, personal computer, and server markets.

Intel’s shares jumped by nearly 3% following reports of Qualcomm’s early-stage approach to buy the struggling chipmaker. Qualcomm’s stock, however, took a slight hit, dropping 1.8%. The reaction of both stocks highlights investor uncertainty about the potential acquisition.

“The rumored deal between Qualcomm and Intel is intriguing on many levels,” said Bob O’Donnell, founder of TECHnalysis Research, per Reuters. “From a product perspective, it makes sense as they have complementary lines. But the reality of it happening is low.” O’Donnell added that it would be difficult for Qualcomm to separate Intel’s product business from its foundry business, which is currently suffering significant losses.

Related: Qualcomm in Talks to Explore Intel Acquisition, Sources Say

Intel, once the dominant force in the global semiconductor market, is going through a rough patch. The company’s market value has fallen below $100 billion for the first time in decades, primarily due to its struggles in the contract manufacturing sector and its failure to capitalize on the rise of generative AI technologies. Intel’s woes were further compounded when it passed on an investment in OpenAI, a move that cost the company in terms of future opportunities.

By comparison, Qualcomm’s market value currently stands at nearly $190 billion, more than twice that of Intel. The chipmaker had $7.77 billion in cash as of June 2023, but analysts suggest that a potential buyout would be funded primarily through stock, which could dilute Qualcomm’s investors. This financial strain might raise concerns among its shareholders, as the deal would likely increase risks.

Under the leadership of CEO Cristiano Amon, Qualcomm has been seeking to reduce its reliance on the smartphone sector by expanding into other industries such as automotive and personal computers. Despite these efforts, the company remains heavily dependent on the mobile market, which has been hit hard by sluggish demand following the pandemic.

Sources told Reuters that Amon is personally involved in the negotiations with Intel and is exploring different options for the potential acquisition. This would not be Qualcomm’s first attempt at a high-stakes acquisition. In 2016, the company tried to purchase NXP Semiconductors for $44 billion, but the deal fell through after Chinese regulators failed to approve it.

Source: Reuters