Qualcomm has initiated discussions with rival chipmaker Intel regarding a possible acquisition of the latter, as per a report in the Wall Street Journal.
This approach comes when Intel is facing significant challenges in maintaining its core semiconductor business. The potential deal could have major implications for the sector at large, though it also faces several hurdles.
Qualcomm CEO Cristiano Amon is personally taking part in the negotiations aimed at acquiring Intel, reported Reuters. Amon has been actively exploring various options to secure a deal, according to a second source knowledgeable about the situation.
Qualcomm’s Intel interests
Earlier reports from the news agency suggested that Qualcomm was considering acquiring specific sections of Intel’s business, particularly its PC design unit. Qualcomm executives have also been evaluating Intel’s entire portfolio.
At present, discussions between Qualcomm and Intel remain in the early stages, and no formal offer has been made, according to a third source familiar with the negotiations. All the sources who provided information on the ongoing talks requested anonymity due to the confidential nature of the discussions.
Both Intel and Qualcomm have so far declined to comment publicly on the matter. Intel’s stock closed with a 3.3% rise, while Qualcomm’s shares saw a 2.9% decline.
This development comes at a challenging time for Intel, a company that was once the leading chipmaker in the world. Intel has seen a near 60% decline in its share value since the start of the year, making it a prime target for acquisition. Should the deal proceed, it is expected to face significant regulatory scrutiny from antitrust authorities in the US, Europe, and China. Qualcomm may be required to divest parts of Intel’s business to secure regulatory approval for the acquisition.
If successful, this would represent one of the largest takeover attempts in the technology sector since Broadcom’s $142bn bid to acquire Qualcomm in 2018, a deal eventually blocked by then-President Donald Trump over national security concerns. It remains unclear how Qualcomm, which currently holds a market value of $188bn, would finance a bid for Intel, whose total value, including debt, stands at $122bn. Qualcomm’s latest filings show that the company holds around $13bn in cash.
Another uncertainty is how Qualcomm would manage Intel’s contract manufacturing operations. Over the decades, Intel has spent billions of dollars building chip fabrication plants and employs thousands of engineers dedicated to producing chips at an atomic level of precision.
Qualcomm, on the other hand, has yet to operate its own manufacturing facility. Instead, it relies on third-party manufacturers such as Taiwan Semiconductor Manufacturing (TSMC) and uses designs from Arm to produce its chips.
Intel fighting to claw back market share
Intel has been attempting to regain its competitive edge, having lost its lead in the chipmaking market to rivals such as Taiwan Semiconductor Manufacturing Co. It has also struggled to capitalise on the surge in demand for chips driven by the AI boom, a market that companies like Nvidia and AMD have successfully dominated.
To address its current challenges, Intel has shifted its focus towards producing processors for artificial intelligence and building a chip contract manufacturing business, referred to as a foundry. CEO Pat Gelsinger recently revealed a restructuring plan, which includes shedding certain business units and halting construction projects in Poland and Germany. Intel has also reached an agreement to manufacture a custom networking chip for Amazon Web Services (AWS).
In a related development, Bloomberg News reported that Intel has been offered an investment of around $5bn by Apollo Global Management. As per the report, the US-based asset management company had recently expressed its interest in making an equity-like investment to the tune of billions of dollars in Intel.
Read more: Broadcom reports $1.87bn loss in Q3 FY24 despite robust AI chip revenue
