Qualcomm to Acquire Intel? Two Major Challenges
Qualcomm's book cash is temporarily insufficient to acquire Intel; moreover, both Qualcomm and Intel's businesses are spread across the US, Europe, China, and other major global markets, and once such a large-scale acquisition is initiated, it would require antitrust regulatory approval from various countries.
On September 21st, news emerged that Qualcomm (NASDAQ: QCOM) is in talks with Intel (NASDAQ: INTC) regarding an acquisition.
Looking at the revenue scale of 2023, Qualcomm is the world's third-largest chip supplier and the largest mobile chip supplier globally; Intel is the world's second-largest chip supplier, as well as the largest supplier of PC (personal computer) chips and CPU (central processing unit) server chips.
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Currently, the largest chip supplier globally is Nvidia.
"Finance and Economics" has sought confirmation from both Intel and Qualcomm regarding the acquisition news.
Intel has declined to comment.
As of press time, Qualcomm has not responded.
Qualcomm's revenue is only 67% of Intel's, but its market value is twice that of Intel.
Qualcomm's revenue for 2023 was $36.29 billion, with a net profit of $7.76 billion.
Intel's revenue for 2023 was $54.23 billion, with a net profit of $1.69 billion.
After rumors of Qualcomm acquiring Intel surfaced, the U.S. stock market was closing.
Currently, there is little change in the stock prices of Qualcomm and Intel.
As of the close on September 20th, Eastern Time, Intel's stock price was $21.8, with a market value of $93.19 billion.
Qualcomm's stock price was $168.8, with a market value of $188.17 billion.
It is a recognized fact that the difficulty of Qualcomm acquiring Intel is very high.
There are two major difficulties: First, Qualcomm's book funds are temporarily insufficient to acquire Intel.
Qualcomm's financial report shows that as of June 23, 2024, Qualcomm's cash and cash equivalents were only $7.77 billion, and marketable securities were $5.26 billion.
This means that Qualcomm's total short-term available proprietary funds are $13.03 billion, but Intel's market value is over $93 billion.
There is a gap of more than $80 billion.
Second, both Qualcomm and Intel's businesses are spread across the US, Europe, China, and other major global markets.
Once such a large-scale acquisition is initiated, it would require antitrust regulatory approval from various countries.
Antitrust reviews often take more than half a year, and if any country or region's regulatory authority vetoes, the merger will fail.
From 2022 to 2023, Intel has experienced a decline in revenue for two consecutive years.
In 2024, Intel began to fall into losses, with a net profit of -$1.99 billion in the first half of 2024, and a net profit margin of -7.8%.
Since 2024, Intel's stock price has declined by 54.3%.
In early August of this year, Intel announced plans to lay off 15,000 people, accounting for 15% of the workforce.
Intel plans to suspend dividends in the fourth quarter of 2024, which is the first time to suspend dividends in 32 years (since 1992).
Intel has three major businesses: first, PC chips, which account for 54% of Intel's total revenue and are the main source of profit; second, data center chips, which account for 28.6% of Intel's total revenue, but this part of the business is declining in revenue and is losing money; third, chip foundry, which currently accounts for only 1.8% of revenue and is Intel's long-term strategy for the next 3-10 years.
However, chip foundry cannot make a profit in the short term, and it requires hundreds of billions of dollars in huge capital expenditures every year, and faces competition from TSMC and Samsung.
The difficulty Intel is currently facing is that the PC chip business can contribute limited profits; in the data center chip market, the proportion of traditional CPU (central processing unit) computing power is declining, while GPU (graphics processing unit) computing power is increasing.
Intel's market is being divided by Nvidia.
In the chip foundry market, Intel plans to invest $100 billion to build or expand chip factories in four states in the United States, but Intel's current cash and profits are difficult to support such a large-scale investment.
Because of this, Intel began to take measures to "increase revenue and reduce expenditure" in 2024 - in March this year, Intel announced the spin-off of its chip production foundry business and established an independent chip foundry department, Intel Foudary.
Against this backdrop, many American media have reported news of Qualcomm acquiring Intel.
In reality, with Qualcomm's current book funds, it is difficult to acquire Intel.
Qualcomm's second quarter financial report for 2024 (as of the quarter ending June 23, 2024) shows that the company's cash and cash equivalents are $7.77 billion, and marketable securities are $5.26 billion.
Qualcomm's total short-term available proprietary funds are $13.03 billion.
Intel's current market value is $93.19 billion.
In the view of many chip technology professionals, although Intel is temporarily facing operational challenges, it is still a high-quality asset.
Its stock price is even underestimated.
If Qualcomm wants to acquire Intel, it will face a funding gap of more than $80 billion.
A chip technology professional told "Finance and Economics" that once the merger is initiated, Qualcomm's cash and marketable securities are far from enough to acquire Intel.
Unless other methods such as equity swaps and institutional loans are adopted.
Antitrust review, this will be the biggest obstacle for Qualcomm to acquire Intel.
Intel and Qualcomm's businesses cover the US, China, Europe, and other major countries or regions.
Therefore, this acquisition will need to be filed for antitrust review separately in each of the aforementioned jurisdictions, and it needs to be approved separately by each jurisdiction before it can be passed.
Otherwise, it will face local legal penalties.
China's antitrust regulatory authorities will be an important decision-maker for whether the merger is established.
In the Chinese market, the "Regulations on the Standards for the Declaration of Concentration of Undertakings" revised in January 2024 (hereinafter referred to as the "Regulations") have clear provisions on merger cases involving business in China.
Once the parties to the merger have revenue in the Chinese market exceeding a certain standard, they must declare to the antitrust enforcement agency in advance, otherwise, the merger will not be approved.
There are two thresholds: first, the total turnover of all operators involved in the concentration in the previous fiscal year globally exceeds 12 billion yuan, and at least two operators have a turnover of more than 800 million yuan in China in the previous fiscal year; second, the total turnover of all operators involved in the concentration in China in the previous fiscal year exceeds 4 billion yuan, and at least two operators have a turnover of more than 800 million yuan in China in the previous fiscal year.
Qualcomm's fiscal year 2023 (referring to October 2022 - September 2023) revenue was $35.82 billion, and Intel's fiscal year 2023 (referring to January 2023 - December 2023) revenue was $54.23 billion.
Both have exceeded 12 billion yuan in global revenue, which has reached the antitrust filing standard in the Chinese market.
Qualcomm's fiscal year 2024 revenue in the Chinese mainland market was $22.38 billion, and Intel's fiscal year 2023 revenue in the Chinese market (including mainland China and Hong Kong) was $14.85 billion, which also reached the antitrust filing standard in the Chinese market.
Liu Xu, a special researcher at the National Strategy Research Institute of Tsinghua University, told "Finance and Economics" that in China, the specific review process will be carried out according to the aforementioned "Regulations".
From the perspective of the antitrust review of concentrated operators, Intel and Qualcomm have a competitive relationship in some market segments, especially in the chip design field, where the two companies' businesses are highly overlapping.
Previously, Qualcomm's acquisition of NXP and Intel's acquisition of the Israeli chip manufacturer Tower both failed due to not obtaining approval from the antitrust enforcement agency in time.
A senior scholar in the field of antitrust told "Finance and Economics" that the antitrust review needs to be carried out after both parties sign the acquisition agreement.
Due to the huge impact of the transaction between Qualcomm and Intel on the global chip market competition, it is necessary to analyze multiple segments of the chip field.
First, from a procedural point of view, it will enter the substantive review process.
The time will be long, and it is expected to take at least more than half a year for review.
Second, if you want to pass, you will probably add conditions.
For example, requiring the divestment of some of Intel's businesses and assets.
Third, if an antitrust enforcement agency in a certain jurisdiction believes that this transaction may bring about damage to competition, and it cannot be resolved by asset divestment and other methods, it may also directly prohibit the transaction.
An industry insider told "Finance and Economics" that the chip industry has its particularity.
For antitrust enforcement agencies in various countries, even if there is no obvious monopoly behavior that harms the country, based on geopolitical relations and the consideration of not wanting global chip giants to further integrate and grow, it may also negate the acquisition.
In this acquisition, the disposal of Intel's assets is also a key issue.
Fang Liang, the secretary of the board of directors of Su Ke Si Semiconductor, told "Finance and Economics" that previously, Intel has announced the spin-off of the foundry department Intel Foundry as an independent subsidiary.
For Qualcomm, the first thing that may continue is the established route of dividing Intel's manufacturing and design business, and the foundry will be separated, but who the buyer is and how to price are unknown.
Second, Intel's GPU business may be eliminated or absorbed into Qualcomm's graphics department.
In addition, whether Intel's self-driving company Mobileye and programmable solution company Altera can cooperate with Qualcomm is also worth paying attention to.
In short, Intel's business and assets are complex, and even if Qualcomm is already a leader in the global chip industry, it is not easy to acquire a chip giant like Intel.