Qualcomm deal for Intel unlikely due to regulatory issues, especially China – analyst

A potential Qualcomm (NASDAQ:QCOM) acquisition of Intel (NASDAQ:INTC) appears unlikely given the “significant” regulatory issues with a deal, especially from China, according to a Raymond James analyst.

The note comes after the WSJ reported Friday that Qualcomm (QCOM) made a takeover approach to Intel (INTC) in recent days, though a deal is said to be “far from certain,” a person familiar told the publication. The news sent Intel shares up 3.3%, while Qualcomm fell 2.9%.

“The speculated QCOM+Intel deal is unlikely to receive China regulatory approval in our view, given the recent M&A experience in the industry,” Raymond James analyst Srini Pajjuri wrote in a note on Friday.

Recall that Intel (INTC) last August walked away from a $5.4 billion purchase of Tower Semiconductor (TSEM) after failing to win Chinese regulatory approval in a timely manner.

European Union and other regulators would also likely question the transaction as the combined entity will have >60% revenue in both PC and smartphone chip markets, Pajjuri added.

Bloomberg separately on Saturday confirmed Qualcomm’s (QCOM) recent approach and also said that the company has been speaking with US regulators and believes that an all-American combination may allay concerns around a deal with Intel (INTC).

“Assuming no regulatory issues, it might make strategic sense for QCOM to buy INTC’s Products, but not all of INTC, in our view,” Pajjuri wrote.

Intel’s Product business could be valued at about $130 billion to $140 billion and a possible deal with Qualcomm (QCOM), which has a market cap of $194 billion, wouldn’t be small and will face “significant” regulatory concerns with “very little” odds of being approved by China, according to Pajjuri. A Qualcomm purchase of Intel’s PC business alone also might be complex given that at x86 architecture & CPU design resources are shared between INTC’s PC and Data Center business.

Instead of a purchase of Intel (INTC), a Qualcomm acquisition of Altera (100% owned by Intel) might make sense, Pajjuri wrote. China approval could still be problematic, though it has better odds than other options.

Altera may be worth about $18 billion to $22 billion and Qualcomm (QCOM) could see “modest” EPS accretion with minimal opex synergies, according to Pajjuri. Intel acquired Altera for $16.7 billion in 2015.

Reuters reported earlier this month that Qualcomm (QCOM) has looked into the potential purchase of Intel’s (INTC) design business as the San Diego-based mobile chipmaker attempts to improve its product line. Qualcomm has been considering various parts of Intel’s (INTC) design operations, particularly its client PC design division, which is of significant interest.

Raymond James Pajjuri earlier this month wrote that Marvell Technology (MRVL) could also be interested in Altera. He cautioned that a deal would likely require regulatory approval by China, which could prove problematic in the current geopolitical climate. Reuters has also reported that Marvell could be a potential bidder for Altera.

“From a strategic standpoint, a potential acquisition would help MRVL diversify into Industrial/Defense markets and beef up its already strong presence in Telco and Data Center markets,” Pajjuri wrote earlier this month.