Posted on 09/23/2024 8:23:06 PM PDT by SeekAndFind
Shares of Intel jumped 3% Friday as The Wall Street Journal’s Lauren Thomas, Laura Cooper, and Asa Fitch reported that Qualcomm has approached Intel about acquiring it for perhaps as much as $90 billion, citing multiple unnamed sources.
The “massive” deal, as the authors put it, is financially daunting, as Qualcomm has just $13 billion in cash and equivalents on its balance sheet against $13 billion of long-term debt. Even a mostly stock exchange would require some large debt raise. Intel, moreover, already has $19 billion of net long-term debt.
The deal is much larger than Qualcomm’s attempted acquisition of NXP Semiconductor in 2016 for $38 billion. That was initiated at a time when Qualcomm had an enormous amount of cash trapped overseas prior to 2017’s Tax Cuts and Jobs Act that let Qualcomm bring it back to the U.S. (Qualcomm ultimately spent $22 billion of repatriated money on buybacks when the NXP deal was canceled.)
The profile of the combination, moreover, would be financially unattractive, as Intel has a 35% gross profit margin to Qualcomm’s 76%. And Qualcomm’s pretax operating margin is near 30%, whereas Intel’s is break-even on an adjusted basis, but actually negative by 15% when all costs are factored in. Intel would immediately dilute Qualcomm’s profit profile.
Assuming, however, Qualcomm could pull it off financially, what are the synergies— meaning, what is to be gained financially and strategically from such a move?
What Qualcomm needs most is diversification, as it is still considered by investors to be a cell phone chipmaker. It still gets about 70% of its chip revenue quarterly from mobile, even though Qualcomm has for several years been selling chips into the Internet of Things (IoT) market and the automotive market.
Buying Intel would immediately make the company the top PC microprocessor and server processor vendor, which would certainly change the profile of the company.
Intel needs to regain its manufacturing prowess. The positive announcements from the company earlier this week included references to the company having “momentum” in getting its newest chip technology, 18A, out the door next year. It’s hard to know what that momentum really means, and whether it’s going to restore Intel to greatness. It’s conceivable Intel needs a helping hand.
Qualcomm, which has no factories of its own, offers, ostensibly, nothing to help Intel in that regard. While it is possible Qualcomm’s higher-margin products could give Intel a much needed financial lifeline that would advance that momentum, I’m not sure throwing money at the problem is the solution. More cooks in the kitchen is not going to streamline the intricate challenge of enhancing Intel’s factory operations.
Moreover, neither company has, individually or collectively, the solution to their mutual problem, Nvidia. While both Intel and Qualcomm have ample artificial intelligence resources, neither has been able to put a dent in Nvidia’s market dominance despite years of trying.
It’s possible that Qualcomm’s CEO, Cristiano Amon, sees something deeper. One possibility is that he sees a grand alliance, of sorts, of Intel’s server chips and Qualcomm’s mobile chips that might somehow box Nvidia out of the AI market as AI moves to mobile phones.
The phenomenon is called in the industry “AI at the edge,” where the server and the handset intelligently apportion the work between them to make the most efficient processing of AI where it makes sense for the available computing resources. One does stuff that’s private and low-resource on the handset, and the really heavy-lifting sorts of AI, in the cloud.
Nvidia doesn’t have a mobile chip offering, so that line of argument has a certain appeal. Moreover, Intel’s substantial assets in what’s called chip “packaging,” the ability to combine multiple chips into one giant chip, could allow for new kinds of mobile products beyond what Qualcomm currently builds with the help of Taiwan Semiconductor Manufacturing.
A grand alliance to defeat Nvidia still faces the problem that Intel’s x86 chip architecture, which dominates PCs and servers, is nowhere in the handset business. It’s not clear the combined efforts of the two companies could make it relevant in that regard, with or without lots of AI capabilities.
You can imagine lots of other, less-glamorous possibilities. Intel is going to spend billions of CHIPS Act funding to build U.S. factories, and perhaps Amon sees the possibility there of boosting Qualcomm’s profile by making it an American-made company.
It’s also possible that Amon simply sees a stock trading too cheaply. Intel shares fetch two times the revenue and 19 times next year’s expected earnings per share, among the lowest multiples in the industry.
For the moment, Qualcomm investors don’t see too much to cheer about. Qualcomm stock was down 3% on the news. Qualcomm has trailed the Nasdaq Composite this year, rising 17% versus 20% for the Index.
Intel has tried to milk their processor lines like Disney milkes Mickey and Donald Duck
Maybe charging a premium price for not so premium performance is not a winning play
And intel is getting squeezed from the bottom up by disruptive advances by the smart phone chip foundries that are in a nuclear arms race for processing power and minimum energy consumption are stealing economy of scale away from the legacy chip makers
Apple has dumped Intel for their own chip architecture which blows intel away
Qualcomm corporate headquarters have always been in San Diego.
I capitalize every 5-7 years which involves a rather large nut. My latest workstation has a Threadripper instead of a pair of XEONs. Very happy. Servers are a different story for the obvious reasons.
Qualcomm is in San Diego
Internal power struggles damaged Intel along with outsourcing.
I worked there for 27 years and loved it until Paul Ordelini retired.
I’ve been a long time supporter of Intel. I waffled back and forth with AMD and Intel in the late 90s and early 2000s, but there were support and cross-compatibility issues with graphics cards and AMD procs early on, so I settled on Intel.
I recently upgraded to an Intel Gen 14 processor from a Gen 13, and I was bit by their microcode screw up that caused constant BSODs and a completely unstable system. I’m hobbling it along waiting for support to take my CC information to send me a replacement. It’s been 2 months now.
Their quality control has gone to pot, and I’m not sure I’ll ever buy another Intel mainboard/proc again. And of course I’m sitting on shares of their stock that are bordering on worthless.
I had many months of BSODs with the late 2022 Threadripper as well. It was so bad that I had to set up an out-of-band power management system. There was no built-in LOM like we’d find on the server systems. Regardless, it’s a high-end workstation that had some annoying growing pains. The BSODs have since cleared up. BTW, the techs indicated that MS provided no special considerations for the manufacturers that shipped Windows. Crazy.
Loved my dual XEON workstations, but I wanted to give the high-perf single CPUs a try.
The chip biz is a place where the rich get richer and the poor get poorer.
Foe over 50 years Intel got richer and richer while many others got poorer and some even starved to death.
Seem like they have transitioned from a policy of rapid innovation and creative extinction to stagnating and milking their product lines and relying on their market dominance
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