There are reports that Qualcomm has recently made an early approach to the troubled Intel for a buyout. At the same time there is also news that Apollo Global Management Inc. has proposed to Intel, plans to invest billions of dollars.

From the chip leader into a takeover target

Qualcomm is interested in acquiring Intel's news, Intel's stock price should rise, Qualcomm is down. From the two stock price changes can be seen, Intel is now a hot potato.

At the beginning of August this year, Intel disclosed in its second-quarter results report, its foundry business revenue of $ 4.3 billion, an increase of 4% year-on-year, down 1% from the previous year. Foundry business operating loss further expanded to 2.8 billion U.S. dollars, operating margin of -65.5%.

The foundry business, which was given high hopes, did not take off, resulting in Intel's entire earnings report also became ugly. The data showed that Intel's second-quarter revenue fell 1% year-on-year to $12.83 billion, below analysts' expectations of $12.94 billion. Net loss of $1.6 billion, compared with a profit of $1.5 billion in the same period a year earlier, turning a year-on-year profit into a loss, with adjusted earnings per share of only $0.02.

For the third quarter guidance, Intel expects revenue to be between $12.5 billion and $13.5 billion, below analysts' expectations of $14.39 billion. At the same time, Intel expects to report an adjusted loss of $0.03 per share for the third quarter, compared to analysts' expectations of a profit of $0.3.

With earnings under pressure, Intel was forced to announce a $10 billion cost-cutting program. Intel said the company will lay off about 15% of its workforce, affecting about 15,000 jobs; at the same time suspend the dividend that has been paid since 1992, which is the company's first suspension of dividend payments in 32 years.

For decades, Intel has been the world's highest market capitalization of semiconductor companies, its chips are widely used in personal computers and servers. In the chip industry, Intel is a rare chip company with design and manufacturing capabilities, and is a world leader in both.

But with widening losses in its foundry business and lagging behind in artificial intelligence, the once-lucrative chip giant has become bloated and inefficient.

“The shift to AI has really been the death blow for them (meaning Intel) over the last two or three years.” Angelo Zino, senior industry analyst at CFRA Research, said, “They just didn't have the right capabilities.”

Qualcomm's acquisition of Intel is difficult

From the current point of view, Qualcomm Qualcomm acquisition of Intel's difficulty is not small. Because even if Intel is now in crisis, the company is still a chip giant, Qualcomm wants to merge such a giant, the difficulty can be imagined.

First of all, from the point of view of the amount of money on the books, Qualcomm does not have the financial ability to acquire Intel.

According to Qualcomm's financial report, as of June 23, 2024, the company's cash and cash equivalents were $7.77 billion, $5.26 billion in marketable securities. And as of the close of business on September 20, Intel's market capitalization was about $93.4 billion. If Qualcomm to fully acquire Intel, had to face the situation of external debt.

Gabelli Funds portfolio manager Hendi Susanto said that the acquisition of Intel will be Qualcomm's gross margin, operating profit, earnings per share and cash flow caused by “significant financial setbacks”.

Secondly, for Qualcomm, the forced acquisition of Intel, the company's investors is also a hindrance.

So far this year, Intel shares have plunged more than 55%, becoming the worst-performing stock in the Dow Jones index. At the same time, Qualcomm shares rose nearly 20%. If Qualcomm proposed acquisition of Intel, its stock price trend may press the “pause button”. Given Intel's many woes, it's hard to imagine Qualcomm investors would agree to such a huge acquisition.

Moreover, such a huge acquisition, regulators are bound to intervene in antitrust investigations. Once the regulators do not approve, Qualcomm can only end up with a basket of water.

For Qualcomm, the acquisition of Intel this matter can almost be said to be more harm than good.

Susanto that Qualcomm will “inherit all the challenges of Intel”, but at present Qualcomm does not have what is unique to show that it can significantly help solve the problems faced by Intel.

Some analysts say Qualcomm's acquisition of Intel may be looking at its chip foundry business. But Susanto believes that the acquisition of Intel will not help reduce Qualcomm's dependence on the chip foundry giant TSMC. Susanto pointed out that TSMC is still ahead of Intel in manufacturing technology, and even in the most optimistic scenario, Qualcomm will still need to rely on TSMC in the short to medium term.

Moreover, chip manufacturing is very complex and costly. Intel last year invested $ 25.8 billion in capital expenditures, equivalent to about 48% of its revenue. In contrast, Qualcomm's capital expenditures last fiscal year totaled $1.5 billion, accounting for only a little more than 4% of its sales.

Susanto also pointed out that Qualcomm has now developed a computer microprocessor using chip design company ARM technology, which is already competing with Intel in the personal computer market, which will further reduce the likelihood of a deal between the two sides.

Apollo may invest billions in Intel

People familiar with the matter said that in recent days, the U.S. asset management company Apollo to Intel, willing to make as much as 5 billion U.S. dollars of equity-type investment in the company.

Than Qualcomm's acquisition, Intel looks more inclined to accept external investment. People familiar with the matter revealed that Intel executives have been considering Apollo's proposal.

However, sources familiar with the matter stressed that everything has not yet been finalized, Apollo's potential investment size may change, the negotiations will not necessarily be successful.

It is worth mentioning that the two companies have previously established a cooperative relationship. In June of this year, Apollo said it would acquire a 49% stake in Intel's new manufacturing plant joint venture in Ireland for $11 billion.

Apollo also has experience with other investments in chip manufacturing. Last year, Apollo led a $900 million investment in Western Digital Corp. by subscribing to its convertible preferred stock.