A potential takeover of chipmaker Intel by rival Qualcomm is likely to be 'impractical' as it would face financial and regulatory obstacles, especially in China, BofA Securities said in a recent note. Qualcomm has made a takeover approach to Intel, according to sources cited by The Wall Street Journal.
The acquisition could allow Qualcomm to diversify away from licensing into adjacent semiconductor markets while positioning it as the largest semiconductor company globally. However, BofA analysts have identified several financial and operational hurdles that Qualcomm would need to address. They noted that Intel approaches the market with a focus on x86 architecture, contrasting with Qualcomm's focus on Arm architecture, posing strategic and operational challenges.
Furthermore, constructing a financially feasible purchase would be 'challenging' given Intel's considerable debt, exceeding $50 billion. Previously, Qualcomm was forced to abandon its planned acquisition of NXP Semiconductors due to regulatory challenges, which suggests that a potential Intel acquisition could encounter similar issues.
If a deal materializes, it has the potential to help reduce Intel's debt by monetizing parts of Intel's stakes in Mobileye and Altera. However, the future of Intel's x86 products remains uncertain given Qualcomm’s emphasis on Arm-based central processing units. Analysts report, 'We see no near-term change to the current competitive landscape and share loss dynamic of Intel’s personal computer and server CPU lineups.' Additionally, any merger with Qualcomm would likely struggle with a challenging regulatory environment, particularly in China.
Historical precedence indicates that such transactions can take years to even begin consideration. Overall, analysts remain skeptical about the proposed transaction's viability, citing potential confusion regarding headcount and roadmap disruptions from any announcement. Should a deal be proposed, it may present a relative positive for Intel’s rivals like Nvidia, Broadcom, and Advanced Micro Devices, as they would likely capture more market share.
BofA has maintained its underperform rating on Intel stock, while continuing to buy recommendations for Qualcomm. Separately, alternative asset manager Apollo Global Management has proposed an investment of up to $5 billion in Intel, as reported by Bloomberg News. As of now, Intel shares closed 3.3% higher on Monday, although they have faced nearly 55% depreciation this year.
Qualcomm shares dropped by 1.8%, while Apollo's stock rose by 0.6%. Neither Intel, Qualcomm, nor Apollo have responded to requests for comments regarding these developments..