Chip Industry Shakeup: Qualcomm to Acquire Intel?
As the once largest global chip manufacturer, Intel has had a rather rough year in 2024.
On one hand, losses continue to mount. The financial report for the second quarter of this year shows a net loss of 1.61 billion US dollars. Following the release of the report, Intel announced a 15% reduction in workforce, affecting over 15,000 employees.
On the other hand, the stock price keeps falling. Since the beginning of this year, Intel's stock price has plummeted by nearly 40%, with the latest market value standing at 93.3 billion US dollars.
Now, there are reports that Qualcomm is looking to acquire Intel.
On September 20th, local time, according to a Wall Street Journal report, Qualcomm has recently sent an acquisition proposal to Intel and has been in contact with Intel regarding the acquisition.
Additionally, Reuters reported that Qualcomm CEO Cristiano Amon has been involved in negotiations to acquire Intel, exploring various options for the deal. However, the negotiations between Qualcomm and Intel are still in the early stages, and Qualcomm has not yet made a formal offer to Intel.
Advertisement
The report indicates that the deal is far from certain. Even if Intel is willing to accept, a transaction of this scale would almost certainly attract rigorous antitrust scrutiny, although it could also be seen as an opportunity to strengthen the United States' competitive edge in the chip sector. To complete the deal, Qualcomm may plan to sell some of Intel's assets or parts of its business to other buyers.
In response to this news, both Intel and Qualcomm have declined to comment.
Although the deal itself is still in a very early stage of discussion, the attitudes of the two parties involved in the rumored transaction are noticeably inconsistent. After the news broke, Intel's stock price once surged by up to 9%, but the increase later narrowed, with Intel closing up 3.3% as of September 20th; whereas Qualcomm fell by 2.9%, with its investors not being optimistic about this potential deal.
Unlike Intel's stock price, which has been halved this year, Qualcomm has risen by about 16% since the beginning of the year, with a current market value of 188.2 billion US dollars, approximately twice that of Intel. If this deal were to materialize, it would become one of the largest mergers in the history of the tech industry.
Qualcomm's pursuit of acquisition focuses on complementing the edge ecosystem
As early as September 5th, Reuters reported that Qualcomm is seeking to acquire Intel's design business to enrich its product portfolio.
The main reason for Qualcomm's acquisition is to expand its PC chip business and complement its edge product ecosystem.
Currently, aside from the PC market, Qualcomm has already made significant inroads in the chip market for edge devices.
In the smartphone sector, Qualcomm, with its Snapdragon series of SoC chips and deep integration with the Android operating system, firmly holds a share of the high-end mobile chip market. According to Qualcomm's CFO Akash Palkhiwala, in the second quarter of 2024, Qualcomm's market share in models priced above 400 US dollars has increased from 21% to 31%.
Evolution of Qualcomm's smart cockpit chip
In the smart automotive field, Qualcomm has achieved great success in the automotive smart cockpit sector with the 8155 platform, and continues to capture the market with the 8295 platform. Currently, it maintains an absolute market share in the automotive smart cockpit chip sector and is making breakthroughs in the smart driving chip sector. Financial report data shows that Qualcomm's revenue from automotive business in the second quarter of this year was 811 million US dollars, a year-on-year increase of 87%.
In the Internet of Things sector, Qualcomm is one of the main suppliers of global IoT chips, with chip platform layouts in four sub-tracks: smartwatches, MR (mixed reality), drones, and robots, especially with a high market share in the drone and MR sectors.
Only in the PC sector, despite multiple attempts by Qualcomm to break through, it has not been able to achieve a breakthrough due to the ecological dominance of the "Wintel" alliance (Windows and Intel).
In 2018, Qualcomm launched the Snapdragon 850 and 8cx to enter the PC processor field, hoping to leverage the unique advantages of 5G integration to challenge the monopoly of the Wintel alliance. However, due to the performance and software ecosystem gap between ARM architecture chips and Intel, the related products did not succeed.
Intel still holds an absolute leading position in the PC market. According to the shipment data released by global market research institution Mercury Research for the second quarter of 2024, Intel's CPU market share in the client PC market is 78.9%; in the X86 server CPU market, it is 75.9%.
In recent years, with the rise of the AI PC wave, Qualcomm has launched an attack on the PC market again. In 2023 and 2024, Qualcomm respectively released PC processors Snapdragon X Elite and X Plus, which, according to their description, are designed for generative AI and high-performance computing. In May of this year, Qualcomm established an exclusive partnership with Microsoft to jointly launch the Copilot+PC equipped with Snapdragon X Elite and Snapdragon X Plus.
Qualcomm predicts that by 2027, at least 50% of PCs will have AI capabilities.
In this regard, TF International Securities analyst Ming-Chi Kuo believes that the acquisition of Intel would only help Qualcomm's AIPC chip business. However, given Microsoft's commitment to WoA (Windows on ARM) (its latest Surface models all use Qualcomm processors/ARM architecture), Qualcomm's growth in the PC market is only a matter of time.
He pointed out that, considering Intel's market value of about 93 billion US dollars, this acquisition would put immense financial pressure on Qualcomm and would have an immediate negative impact on profitability, with the net profit margin potentially dropping from the current 20%+ to single digits or even a loss (wafer foundry business is the biggest burden). In addition, considering the subsequent antitrust investigations by various countries, this acquisition would be difficult to complete in the short term. In this light, Qualcomm should not have a strong motive to acquire Intel; if this acquisition were to occur, it would be a disaster for Qualcomm.
"My research and understanding are that Qualcomm also has a negative attitude towards acquiring Intel in internal discussions," Kuo said. "In this case, a rumor I've heard might be correct, that is, Qualcomm is assessing the feasibility of acquiring Intel cautiously and passively due to some 'irresistible external force' pressure."
Intel's crisis began with a "wrong bet"
Whether "voluntary or not," Qualcomm's acquisition proposal to Intel at this time is quite an appropriate juncture, as the latter is in a major danger period not seen in more than 50 years since its establishment.
Some believe that strategic errors and the rise of artificial intelligence (AI) technology have significantly reduced Intel's competitiveness. CFRA Research senior analyst Zhino also pointed out: In the past two to three years, the rise of AI technology has indeed been a fatal blow to Intel, and it lacks a proper response.
As AI develops rapidly around the world, Intel has put a lot of effort into manufacturing.
Intel has carried out wafer foundry business, providing 22nm process for semiconductor company Achronix in 2010, with Nokia, Qualcomm, Apple, LG, and others as its foundry customers. However, by the end of 2018, with the repeated postponement of the 10nm process and tight capacity, Intel gradually stopped external foundry services.
In March 2021, shortly after Pat Gelsinger took office as Intel's CEO, he announced the IDM 2.0 strategy, declaring a return to the foundry market.
The IDM 2.0 strategy mainly includes three aspects: first, reaffirming the desire to continue producing most of the products internally; second, expanding the use of third-party foundry capacity and further strengthening cooperation with third-party foundries; third, building a world-class foundry business - Intel Foundry Services (IFS). In the future, Intel's manufacturing will transform into a combination of "Intel factories + third-party capacity + foundry services."
For this, Gelsinger has invested a huge amount of money to expand production lines and sell capacity to chip design companies such as Qualcomm, hoping to share the global chip foundry industry dominated by TSMC and Samsung.
However, the development of this strategy has not been smooth.
In August 2021, Gelsinger originally planned to acquire Global Foundries for about 30 billion yuan, but unfortunately, the deal failed; then it wanted to acquire another contract chip manufacturer Tower Semiconductor for more than 5 billion yuan, but because Chinese regulatory authorities refused to approve it, the merger has also been canceled, and Intel's ambition to become the world's second-largest chip manufacturer by 2030 has come to an abrupt end.
While Intel was busy with chip foundry, AI technology has made rapid progress, and Intel, which did not keep up with the trend, fell into a crisis and began to lay off thousands of people in 2022; in August 2024, it announced the continuation of layoffs of 15,000 people.
At this time, Gelsinger also admitted: The popularization of AI technology is much faster than I expected.
Of course, Intel, which is in crisis, will not sit idly by.
Just before the "acquisition" was proposed, Intel just announced a series of changes.
According to the Wall Street Journal, on September 16th, local time, a letter to all employees was issued, focusing on several transformative efforts that Intel is undertaking, including: cooperation with Amazon's cloud service AWS on custom chip projects, the operation of the independent foundry business (Intel Foundary), the factory construction plan after obtaining subsidies from the US chip bill, and adjustments to the sale of some equity in its FPGA (programmable chip) department Altera, and so on.
As the helmsman of Intel, Gelsinger frankly said: "This is the most important transformation of Intel in more than forty years. Since the transition from memory to microprocessors, we have not attempted anything so important. We succeeded at that time, we will meet this moment, and build a stronger Intel in the next few decades."
Behind the acquisition, there is a lot of pressure
Intel's situation today is like Qualcomm's yesterday.
In 2017, chip design company Broadcom also made an acquisition offer to Qualcomm at 70 US dollars per share, with a total of about 105 billion US dollars, with a specific payment method of 60 US dollars in cash plus 10 US dollars in Broadcom equivalent stock. At that time, the acquisition offer also agreed to let Qualcomm continue to acquire NXP at a price of 38 billion US dollars and was willing to bear 25 billion US dollars in debt after the acquisition. Compared with Qualcomm's market value at that time, it had a premium of more than 20%.
At that time, Qualcomm was also in great difficulties. On the one hand, it faced a fine for antitrust in South Korea; on the other hand, it was involved in litigation with Apple over patent licensing fees. At the same time, the US Federal Trade Commission also sued Qualcomm, accusing its patent licensing policy of violating federal laws; China's antitrust department also delayed approving Qualcomm's 38 billion US dollar acquisition of NXP.
Under a series of contradictions, Qualcomm's profits plummeted, and its stock price continued to fall.
Under this, Broadcom, together with some financial groups, began to hunt for Qualcomm.
And Qualcomm was obviously not willing to accept such a result. While rejecting Broadcom's director nomination, it also set new obstacles for Broadcom's hostile takeover: once the company's control changes, if existing employees are laid off, the acquirer must pay higher severance compensation.
At that time, there were also reports that in February 2018, Qualcomm told Broadcom that if the other party's bid reached 160 billion US dollars (including debt), Qualcomm would agree to the transaction. This is a premium of more than 50% compared to the initial acquisition offer of about 105 billion US dollars, far exceeding Broadcom's market value of about 100 billion US dollars at the time of the acquisition offer.
In comparison, Intel's crisis is not as severe as Qualcomm's at that time, and there is no need to be acquired. Moreover, this acquisition also faces complex antitrust and national security issues. Since it is a merger of two purely American companies, even if the US regulatory authorities agree, antitrust agencies in Europe and China are likely to disagree.
For example, Intel's acquisition of Tower Semiconductor and Qualcomm's acquisition of NXP both ended in failure; in 2021, the Federal Trade Commission also blocked Nvidia's acquisition of ARM on antitrust grounds, and under pressure from European and Asian regulators, the deal failed in 2022.
However, if the two companies can really merge, from the current revenue and market value, it is indeed possible to create a chip company with annual revenue exceeding 100 billion US dollars and a market value of hundreds of billions of US dollars, which will have a new impact on the chip market.