Intel acquisition by Qualcomm unlikely; Apollo investment possible: analysts

Intel (NASDAQ:INTC) being acquired by Qualcomm (NASDAQ:QCOM) appears unlikely, according to multiple investment firms, despite reports indicating discussions between the semiconductor companies last week.

“Similar to other proposed mega-deals that were unable to clear high regulatory hurdles, such as Nvidia’s (NVDA) bid to acquire ARM Holdings (ARM), Broadcom’s (AVGO) proposal to acquire Qualcomm and Qualcomm’s attempt to acquire NXP Semiconductors (NXPI), we believe that a Qualcomm/INTC deal would be unlikely to garner regulatory approval,” said Stifel analyst Ruben Roy, in an investor note.

Such an acquisition would allow Qualcomm to diversify into more semiconductor markets and bring in strategic enterprise clients. It would also create the largest semiconductor company on the planet with Qualcomm’s $33B revenue combined with Intel’s $52B, according to Bank of America.

“However, we believe the challenges overwhelm the potential benefits with tough regulatory environment, specifically in China, which historically has taken years to even consider medium-sized transactions, so scale/CPU dominance works against the potential QCOM/INTC combination,” said BofA analysts, led by Vivek Arya.

Both companies are extremely reliant on China sales. China serves as Intel’s largest market, accounting for 26% of its revenue in 2023. Meanwhile, approximately 60% of Qualcomm’s revenue in 2023 came from China and Hong Kong. Qualcomm’s sales to Chinese smartphone makers increased 40% over the first half of fiscal 2024.

Intel also has $50B-plus in debt while Qualcomm shows $13B of cash on the balance sheet, making this deal financially challenging, BofA noted.

Apollo opportunity

Separately, Apollo Global Management (APO) has considered investing as much as $5B in Intel.

Wells Fargo said a merger between Intel and Qualcomm has a low probability, but an “equity-like investment” from Apollo is much more feasible.

“We think an Apollo investment would be a positive sign of confidence; however, the extent of existing shareholder dilution would be a key consideration,” said Wells Fargo analyst Aaron Rakers, in an investor note. “As a reminder, in June Intel and Apollo announced an agreement in which Apollo would lead an $11B investment in Intel’s Fab 34 in Ireland; Apollo receiving a 49% equity interest in the JV.”