acquired? is intel on its last legs?
2024-09-24
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author: rong zhihui
editor | xiang you
a materialistic in-depth look at china's chip industry
on september 20, the wall street journal quoted anonymous sources as saying that qualcomm is interested in acquiring intel.
this was unthinkable ten years ago, even though every chip company in the world coveted intel. sure enough, when the news came out, intel's stock price rose, while qualcomm's stock price fell, proving once again that the once most powerful company is no longer as glorious as it once was - intel needs to rely on others to give wall street confidence.
it is difficult for a hero to talk about his past achievements. "big blue" was once the world's largest semiconductor company. moore, who invented "moore's law", was one of the "big three" who founded intel. in recent years, intel has been a benchmark company for "made in america" and the "hope of the whole village" supported by the biden administration's "chips act".
however, intel may have placed too much emphasis on political opportunities and repeatedly missed technological opportunities - it did not catch up with the wave of mobile phone chips, nor did it catch the express train of artificial intelligence. even its most advanced chip manufacturing business in the past was crushed by tsmc.
today, intel's market value is only 4% of nvidia's, and half of qualcomm and amd's. since its stock price plummeted in august, intel has been losing ground, laying off tens of thousands of employees, and delaying plans to build factories in germany and poland. germany didn't even have time to pay out its 10 billion euro subsidy.
"attack while you're sick" is a traditional skill of technology companies. qualcomm has obviously found the right time.
if the deal is successful, it will be one of the most significant and expensive mergers and acquisitions in history. however, precisely because of its significance, the acquisition generally does not succeed. in fact, the two companies have many overlapping business areas, and moderate integration is beneficial to the long-term development of both parties. it’s just that the seller does not want to buy, and the buyer does not want to sell, so in the end, it is mostly "much ado about nothing".
01
intel sells off its hardware
spokespeople for intel and qualcomm declined to comment.
according to insiders, the deal is far from certain and qualcomm has not made a formal offer. meanwhile, antitrust regulators are keeping a close eye on the deal.
qualcomm's market value is $188.1 billion, while intel's is $93.1 billion. if qualcomm fully acquires intel, the $93.1 billion price will easily surpass microsoft's $69 billion acquisition of activision blizzard, making it the largest acquisition in history.
qualcomm was founded in 1985, which is relatively new compared to intel, which was founded in 1968. therefore, at first glance, its acquisition of intel, the "former world's largest chip manufacturer," feels like "a snake swallowing an elephant."
in fact, intel's decline was already evident a few years ago. in 2021, pat gelsinger was appointed as intel's ceo to implement a three-year "turnaround plan." the biggest change in this plan is to return to "made in the usa" - rebuilding wafer fabs to compete with tsmc. prior to this, intel had already outsourced the manufacturing process.
pat kissinger
the implementation of the "turnaround plan" was not smooth. well-known executives left one after another, including industry veteran chen lip-wu, who left the board of directors. reuters reported that chen lip-wu suddenly resigned because he was frustrated with the redundant workforce, chip foundry methods and bureaucratic culture.
in the main business area of chips, after openai's chatbot chatgpt set off a craze for artificial intelligence, the gpus of old rivals nvidia and amd sold like hot cakes, and intel failed to catch up.
the chip manufacturing business, which was forcibly launched, has been fiercely criticized by shareholders: "we believe that the company has very little chance of becoming a profitable cutting-edge foundry."
since 2024, intel's collapse has accelerated, with its stock price falling by more than 50%. in particular, in august, its stock price fell 26% in one day, and its market value fell below $100 billion, marking the largest drop in 50 years.
intel's market value falls below $100 billion
in order to reverse its declining trend, intel first laid off more than 15,000 employees worldwide and suspended dividends, and then considered "extensive asset sales" - selling off everything it had.
qualcomm raised the possibility of a full acquisition after trying to acquire several intel assets, people familiar with the matter said.
02
qualcomm is “swallowing an elephant”?
qualcomm is a leader in the field of cellular technology in the era of mobile internet. its snapdragon chips have been popular for more than a decade and are the "standard configuration" of many flagship smartphones.
it is a bit of an exaggeration to say that qualcomm's acquisition of intel is like a snake swallowing an elephant, because intel was just "rich before", but qualcomm is "much richer now".
qualcomm's market value is more than twice that of intel. in terms of revenue, qualcomm's revenue in 2023 will be $36.2 billion, lower than intel's revenue of $54.2 billion, but the former's net profit is as high as $7.76 billion, while the latter's is only $1.69 billion.
the difficulty of "a snake swallowing an elephant" is qualcomm's cash flow.
qualcomm is more than twice as big as intel in terms of market capitalization
the financial report shows that as of june 23, 2024, qualcomm has $7.77 billion in cash and cash equivalents and $5.26 billion in marketable securities. that means qualcomm's short-term available capital totals $13.03 billion, but intel's market value exceeds $93 billion, leaving a gap of more than $80 billion.
swallowing $93.1 billion worth of intel could easily cause "significant financial setbacks" to qualcomm's gross margin, operating profit, earnings per share and cash flow.
of course, money is still a "small matter", qualcomm attaches more importance to "business complementarity".
previously, former qualcomm executive patrick little revealed that qualcomm is very eager to cooperate with intel, especially intel's chip design business and expertise in the personal computer field.
"these are things that qualcomm is going to have to mature on its own over time," little said.
sure enough, as time went by, qualcomm did not have to "mature on its own" and waited until the moment to "buy ready-made" - intel's "fire sale" at a huge price.
according to people familiar with the matter, if the acquisition is approved, qualcomm will convince us regulators that "(the acquisition) can help us chipmakers compete with chinese chipmakers."
meanwhile, the news coming out of intel is less “optimistic.” citi analysts said in a report released last friday that intel shareholders may be reluctant to sell to qualcomm — they believe the acquisition talks are “almost too stupid to comment on.”
03
the buy-sell paradox
the calculations of buyers and sellers always get stuck at a certain point: i don’t sell what you want to buy, and you don’t buy what i want to sell.
intel's business units are mainly divided into five major areas: client computing (ccg), which is intel's main source of revenue, including processors for personal computers and iot devices; data center and artificial intelligence (dcai), including processors and related products for data centers, cloud computing, and ai applications; edge computing (nex); wafer foundry; other businesses, including programmable solutions company altera, autonomous driving company mobileye, etc.
before the acquisition news came out, intel was undergoing a series of "disastrous" restructuring measures.
according to foreign media reports, pat gelsinger intends to announce the spin-off of the troubled foundry division into an independent subsidiary; postpone the construction of foundries in germany and poland; and integrate other businesses and the nex business into the client division.
in summary, the reorganized intel should be divided into two major departments. one is the client department, including the two traditional strong businesses of ccg and dcai, as well as the "new forces" programming, autonomous driving, and nex business; the other is the foundry department, which will be transformed into an independent subsidiary.
image source: intel official website
foundry wafer fabs are a business that loses money but not necessarily makes money, so no one wants to buy them. fortunately, intel has already split them off, and the remaining customer divisions are relatively easy to "sell".
however, the ccg business unit in the client department is intel's trump card. the second quarter financial report of 2024 shows that even though intel's overall loss was us$1.6 billion, the ccg business still contributed us$2.497 billion in operating profit.
qualcomm's cpu has always been expected to challenge intel's x86 architecture camp. however, on the one hand, the former's bargaining power is not as good as the latter's; on the other hand, intel and amd have a complex cross-licensing patent agreement on x86-64 chips - unless amd agrees, qualcomm has no right to produce intel's chips, which is one of the reasons why no one dared to take over when amd was about to go bankrupt.
intel is reluctant to sell ccg, and qualcomm is not very interested in other businesses. this acquisition could easily fall into a deadlock.
intel's second quarter earnings report
qualcomm is not the only company eyeing intel. broadcom, a chip maker known as the "acquisition maniac" with a market value of nearly $800 billion, wanted to acquire qualcomm in 2017, and has recently been rumored to want to acquire intel. no matter who it acquires, broadcom will definitely be the only chip giant on the planet after the acquisition.
in fact, most acquisition cases in recent years have failed: in addition to broadcom's failure to acquire qualcomm, intel also failed to acquire israel's tower semiconductor, qualcomm's acquisition of netherlands' nxp failed, and nvidia's acquisition of japan's arm failed.
after all, the amount is so huge and the significance is so great that the acquisition of chip giants is no longer a shareholder issue, but an international political and economic issue.
the pictures in this article are from the internet
editor-in-chief on duty | zhao jinghan
layout | feng jianche
