On the face of it, it is not clear what Qualcomm has to look for in Intel. Tonight, the “Wall Street Journal” revealed that the successful chip giant approached the struggling chip giant in recent days with a takeover proposal that would unite the two rivals into one chip company. Seemingly, a strange proposition: Qualcomm is one of the big winners of the mobile revolution, and chips from its development are found in almost every device on the market, including those made by Apple. Intel, once the largest chip company in the world by market capitalization, is suffering from crisis after crisis and is finding it difficult to turn around its deteriorating situation. What does Qualcomm need Intel’s burdensome troubles?
But in practice, this combination has the potential to shake up a significant market, one that can create a new whole that is greater than the sum of its parts, optimize and perfect the activities of the two companies and create a player that can, perhaps, undermine Nvidia’s monopoly in the AI chip market and recharge the efforts of the Biden administration with new energy To turn the US into a global chip manufacturing center. This, assuming they manage to overcome the complex challenges that always accompany this kind of huge merger.
According to reports in the “Wall Street Journal” and “New York Times”, a possible deal is in the very preliminary stages, and Qualcomm has not yet submitted an official offer. Even if Intel accepts the offer and the two companies reach an agreement, there is still no certainty that the deal will go through. This is because a transaction of this magnitude requires regulatory approval from several countries – a complex and lengthy procedure, perhaps impossible in the event that regulatory approval from China is required. In addition, it is not yet clear which parts of Intel Qualcomm wishes to purchase – only the R&D activity or also the production activity for other companies (foundry), when according to market estimates there is doubt about the willingness of regulators, certainly in the US, to approve such a transaction without the foundry activity.
Qualcomm, with a market value of about $188 billion, also does not necessarily have the cash needed to buy Intel, which has a market value of about $93 billion. According to Qualcomm’s latest quarterly report, as of June 2024, the company only had $23.33 billion in existing assets, not all of which were liquid. According to the “Wall Street Journal”, Qualcomm could sell part of its operations or Intel operations in order to carry out the transaction. However, it is likely that in order to carry out a purchase procedure, Qualcomm will be forced to start raising capital. Another alternative is to make a deal through a share exchange procedure, a move that would be more like a merger than a takeover or acquisition.
The fact that Qualcomm is currently in a position to acquire Intel is the result of correct moves on the part of the former, and a series of achievements on the part of the latter. In January 2007, when Steve Jobs unveiled the first iPhone model, the situation of the companies was almost the opposite. Intel was the largest chip company in the world, which dominates the most significant field at the time – personal computers – with a market value of approximately 118 billion dollars. Qualcomm was a small and relatively unknown chip company that specialized mainly in communication chips with a market value of about 62 billion dollars.
But Qualcomm, younger and hungrier than Intel, was able to understand the change heralded by the iPhone. It not only strengthened the capabilities of its communication chips, but also rushed to develop processors adapted to mobile. In the following years, Qualcomm became the leading manufacturer of mobile processors in the world, with its processors found in the leading devices of all major Android manufacturers and considered the preferred elite solution. In the iPhone, although Apple uses pre-developed processors, Qualcomm still supplies the communication chips for the device. Evidence of the company’s quality and success in this field can be seen in Apple’s failed attempt to replace Qualcomm’s communication chips with chips under development – a five-year effort that failed last year and forced Apple to renew the contract with Qualcomm. And just this year, Qualcomm took a significant step to threaten Intel on its home turf, when Microsoft in collaboration with leading manufacturers unveiled a series of AI computers that are based on Qualcomm processors.
Intel, on the other hand, has been in the opposite direction for the past decade and a half. A series of achievements caused it to miss the mobile revolution, and today the company does not have any significant activity in the field. It also failed to understand the expected growth in demand for chip manufacturing services, growth that it could have leveraged in light of its extensive production infrastructure and knowledge in the field, and instead allowed other companies like TSMC to become giants that provide services to giant players like Nvidia and Apple. And these days, the company is unable to close the gap with Nvidia in the production of AI chips, when CEO Pat Gelsinger’s strategic plan to establish a significant foundry activity for the company is mainly generating losses and is years away from a point where it can become profitable.
A possible deal between the two companies has the potential to not only function as a lifeline for Intel, but to create a new multidisciplinary chip giant that could shake up the market and disrupt Nvidia’s hegemony in the field of AI processors. The two companies have complementary fields of activity – Qualcomm is the undisputed master of mobile and communication processors, Intel is dominant in the field of processors for personal computers and very strong in the field of servers. Combining the knowledge and capabilities of the companies in these fields will allow them to offer companies a broader and more complete package of solutions, which can be adapted more quickly to different needs.
Combining resources and capabilities can also help create a more significant alternative to Nvidia. Today, Qualcomm develops AI processors mainly for use in end devices, without any noteworthy activity of processors for data centers that are used to train advanced AI models. Intel does have a supply in this field, but its solutions are not in demand like Nvidia’s processors and it is having difficulty becoming a significant player in the field. Here, too, the connection between the companies and the possibility of sharing knowledge between teams that specialize in different aspects of AI processors can enable the creation of solutions that each company alone is unable to develop, and bring to the market AI processors that will pose a worthy competition to Intel’s processors.
The issue of Intel’s production capabilities will be significant to the completion of the transaction. It is possible that Qualcomm will ask to give up this expensive activity, especially when it comes to the procedures for setting up the new plants, mainly in the USA and Israel, with investments of tens of billions of dollars that will take many years before they begin to justify themselves. Production in the field is at the center of his agenda and he has allocated about 50 billion dollars in the form of subsidies and grants for the establishment of chip factories in the US, he will not allow any deal that could harm these efforts.
Qualcomm does not have significant knowledge or experience in chip manufacturing, but the company can enjoy significant benefits from its own large manufacturing base, the main ones being reduced dependence on external suppliers and streamlining its supply chain. In addition, unlike Intel, it has extensive knowledge in the development of chips in the ARM architecture – the architecture on which the chips of Apple, Nvidia, Qualcomm itself and many others are based. This knowledge, which Intel lacks, can play a significant role in establishing the foundry’s activity and help in recruiting customers.
Equally significant: if the combined company succeeds in cracking both AI processors and chip production, a unique and unrivaled chip giant will be created – one that both develops sought-after AI processors and manufactures them itself. Such a giant can significantly undermine the established hegemony of Nvidia in the field, introduce significant competition to the market and alleviate the ongoing shortage of these processors.
These are very possible successes, but by no means certain or certain. Many barriers stand in front of a possible merger, and many more challenges may harm the success of the move when it is completed. Intel and Qualcomm are different companies with different organizational cultures and different ways of doing things. Both are huge organizations – Qualcomm has about 50 thousand employees, Intel about twice as many. Any merger between the companies will be a complex and expensive procedure, and it will take a long time before the two companies can operate together as a well-oiled machine. At least in the initial phase, the complexity of the merger could slow down the development efforts of both companies.
And despite the potential for the unification of forces, factors such as organizational differences, inefficiencies, and managerial and strategic mistakes at the various levels can mean that the potential will not be realized and instead of the merger creating an efficient and deadly giant, it will produce a heavy, cumbersome and deadly organization.
Both companies have significant activity in Israel. Intel develops in Israel the computer processors, still the flagship product of the company, and has a significant production activity, which it has also committed to expand with an investment of 25 billion dollars. Qualcomm has been active in Israel since 1993, and local development activities focus on communication chips. Over the years, the company has made several significant purchases in the local market, the latest of which was Autotox in 2023 for $350 million.
The local development activities of the companies are not in the same fields, so the most likely move is that, at least in the first stage, the company will keep separate teams united, or just unite them logistically in order to save on office expenses and overhead. The fate of production activity is more complex, and depends on decisions at the global level. If Qualcomm decides to preserve Intel’s production activity, it is possible that the existing activity and the investment in the expansion of production in Kiryat Gat will be preserved, as they are part of Intel’s strategic plan. In the event that it is decided to sell this activity within the framework of the union, there is no certainty that the buyer will have an interest or obligation to preserve the factories in Israel.
