Is Intel being taken over by Qualcomm?

There is speculation that Qualcomm (NASDAQ:QCOM) may be interested in acquiring Intel (NASDAQ:INTC). While this idea does not seem very realistic, there are some arguments in favour of it.

Intel is currently in a difficult position: the company's market capitalisation is below $100 billion – a significant decline compared to 2000, when Intel's market capitalisation was over $500 billion. Adjusted for inflation, it would now be more than $900 billion.

US media outlets are citing Qualcomm as a potential buyer of Intel. Such an acquisition could provide Qualcomm with valuable design expertise and entry into new business areas, particularly in the server and desktop PC markets, where Qualcomm does not currently offer its own products. In addition, Intel's integrated graphics processors (IGPs) for notebook chips would be a significant upgrade over the Adreno graphics unit currently built into Qualcomm's Snapdragon X CPUs. The Adreno GPU is significantly weaker than the graphics solutions from AMD (NASDAQ:AMD) Ryzen and Intel Core Ultra.
Qualcomm's core business, which focuses on processors and modems for smartphones, overlaps little with Intel's offerings. However, Qualcomm is well positioned in the automotive sector, particularly in chips for infotainment systems. Here, the acquisition of Mobileye, an Israeli company specialising in chips for driver assistance systems (ADAS) and automated driving, could be a valuable addition. After all, Qualcomm already has more than one foot in the door of driver assistance systems through its acquisition of Nuvia in 2021 and, immediately afterwards, of the Swedish supplier Veoneer.

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Financial hurdles

Even if the rumours are true, numerous questions remain, particularly regarding financing. Qualcomm has a market capitalisation of $185 billion, which is not even double Intel's. A takeover would therefore be a formidable financial challenge. Over the last four quarters, Qualcomm has generated $23 billion in operating cash flow, with figures fluctuating widely from quarter to quarter. However, regular payments such as dividends, share buybacks and loan payments must be deducted from this cash flow. Furthermore, Intel is currently making a loss. If Qualcomm were to take over Intel, it would face significant debt for years to come.

A takeover therefore only seems realistic if Intel is split up beforehand. One possible division would be the separation of chip development and chip production, with the latter already operating as a contract manufacturer (foundry). However, for Qualcomm, acquiring the manufacturing division would be uncharted territory and associated with high risk, since Qualcomm is traditionally a ‘fabless’ company that outsources the production of its chips to companies such as TSMC or Samsung (LON:0593xq).

TSMC, Samsung or Globalfoundries would be potential buyers of Intel's manufacturing division. For Samsung and Globalfoundries, this could mean acquiring valuable manufacturing know-how, while TSMC could significantly expand its manufacturing capacity in one fell swoop. However, there are no concrete indications of such a deal so far.

Patent issues with AMD

Another stumbling block would be a possible patent conflict with AMD. As reported by the online portal ‘The Register’, Intel and AMD renewed their licence agreement for the use of the 64-bit extension x86-64 in 2009. This agreement allows Intel to use this technology, but explicitly excludes the transfer of the licence. If another company takes over Intel, a new agreement would have to be reached with AMD. Without such an agreement, Intel processors could no longer be sold.

This would put additional strain on the financial situation, as Qualcomm would have to pay the many Intel employees. If Qualcomm were to have its engineers develop ARM processors instead, an important source of income would be lost. Even with mass layoffs in the medium term, this would be very risky economically. A more realistic option might be to poach skilled workers from Intel instead of taking over the entire company.

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