Should Qualcomm take over Intel? Why Wall Street isn't sold on a possible deal.

By Emily Bary

One analyst notes that Intel's situation doesn't seem dire enough for the company to settle for a 'fire sale.' Plus, Qualcomm could see Intel's foundry assets as a headache.

Analysts aren't sold on a possible combination between Qualcomm Inc. and Intel Corp., following a recent report saying Qualcomm approached its beleaguered semiconductor peer about a takeover.

Qualcomm (QCOM) is known for having a simple story, in the view of Melius Research analyst Ben Reitzes. So a purchase of Intel would muddy that narrative.

"Intel's story is quite complex, you need a PhD in code names and semiconductor manufacturing to understand it - and then you need to decipher various ownership stakes in a myriad of assets," he wrote.

Why might Qualcomm be considering such a move? He thinks the company may see value in Intel's (INTC) design assets. They make up a $48 billion business spanning personal-computing, server and networking products, and could potentially help Qualcomm at a time when it risks losing "much of its modem revenue from Apple," Reitzes wrote.

Read: Intel's stock seals strong week. But would a Qualcomm merger make sense?

But that's only one part of the Intel equation. "The desire to own the rest of Intel - including its money-losing Foundry and disparate assets like Mobileye and Altera - is debatable," he added.

Intel declined to comment Friday on the Wall Street Journal report discussing Qualcomm's takeover overture, while Qualcomm didn't reply to a MarketWatch request for comment.

Reitzes added that a deal with Qualcomm might be preferable to Intel shareholders than a possible investment from Apollo. Bloomberg News reported over the weekend that Apollo was willing to make an investment of up to $5 billion in Intel.

Bernstein's Stacy Rasgon said he and his team "would prefer that Qualcomm not pursue this as it seems very risky to us given uncertain returns."

Like Reitzes, he questioned whether Qualcomm would want Intel's foundry business.

"Intel is having enough trouble with them on their own, and we don't know why Qualcomm would be a better owner for those assets," he wrote. "We don't really see a scenario without them either; we don't think anyone else would really want to run them, and believe scrapping them is unlikely to be politically viable at this point."

Opinion: Why Intel's latest move for its foundry business is so significant

And as for Intel, he doubted that the company is "desperate enough" to go for a "fire sale" of its business.

"While their stock is undoubtedly under pressure we do not believe Intel is desperate for cash at the moment, and they seem to believe their future process roadmap (18A and beyond) is on track to drive value in the years ahead," he wrote.

Intel shares are down 57% so far this year.

Mizuho's Vijay Rakesh analyst saw various logistical hurdles to a potential deal.

While Intel has a roughly $93 billion market capitalization, the company would likely only accept a deal at a significant premium, which could mean "significant financing needs" for Qualcomm. The company could need to raise capital with debt or equity offerings, or else strike financing partnerships, Rakesh said.

What's more, there "could also be FTC challenges and pushback from peer semiconductor companies," he said.

See also: Intel's stock ranks dead last in the chip sector by this measure

-Emily Bary

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09-23-24 0735ET

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