The year 2024 has proven to be a turbulent chapter for Intel Corporation (INTC.US), once a titan in the semiconductor industryWith its financial results consistently falling short of expectations and a significant decline in stock prices—which have essentially halved—Intel is compelled to navigate through an increasingly challenging market landscape.

In a bid to restore confidence and performance, CEO Pat Gelsinger has announced an ambitious strategic adjustment plan aimed at revamping the company’s futureHowever, as Intel pivots towards this new path, it has unexpectedly become a focal point of interest for market players looking to invest or acquire.

Initial whispers of Qualcomm (QCOM.US) expressing a desire to acquire Intel circulated through the industry, igniting further speculation regarding potential investments from entities like Apollo and Broadcom

The mere suggestion of such high-profile interest underscores the shifting dynamics in the semiconductor sector, as major companies begin to reassess their positions amid evolving technological demands.

Intel’s Reinvention Amid Competitive Hurdles

Following a disappointing quarterly performance announcement, Gelsinger articulated a clear memo to employees on September 16, 2024. In his communication, he outlined three strategic priorities: the optimization of the 18A chip manufacturing process; the creation of a more robust cost structure; and a renewed focus on artificial intelligence alongside a streamlining of its core x86 architecture product offerings.

In the wake of this revelation, Intel’s stock witnessed a notable upturnJust a couple of days later, reports emerged detailing Qualcomm's potential move to acquire Intel, coinciding with the Federal Reserve's decision to cut rates by 50 basis points

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Following this news, Intel shares jumped by 3.31%, while Qualcomm's stock observed a downturn of 2.87%.

Hours after the Qualcomm acquisition rumors surfaced, it was reported by Bloomberg that Apollo Global Management was considering a strategic investment in Intel amounting to $5 billion—roughly 5.35% of Intel’s market capitalization of $93.4 billion.

Previous collaborations between Apollo and Intel laid the groundwork for this potential investmentSpecifically, as Intel endeavors to expand its foundry services, the high costs associated with these efforts have necessitated its semiconductor co-investment strategy (SCIP). For example, in the second quarter of 2024, Apollo invested $11 billion to acquire a 49% stake in Intel’s Fab 34 facility located in Ireland.

A report by CNBC also suggested that Intel’s financial advisors were encouraging the company to seek investment from Broadcom (AVGO.US), although none of the involved parties have commented on these speculations.

Qualcomm’s Interest in Intel: Rationale and Implications

Since the beginning of 2024, Intel’s stock has plummeted by nearly 55.96%. At its current price of approximately $21.84, Intel’s market value stands at $93.4 billion

This figure is a mere 3.3% of the valuation of its rival NVIDIA (NVDA.US), which boasts a staggering market cap of around $2.85 trillionComparatively, even AMD (AMD.US), a smaller player in the GPU market, has a market valuation exceeding $252.4 billion, showcasing a significant gap in market perception among investors.

This disparity in valuations reflects the underlying challenges faced by Intel, particularly in the realms of foundry performance and technological innovation, as the company grapples with the pressures of sustaining its financial viabilityGelsinger's memorandum sheds light on the urgency of this situation, emphasizing the importance of streamlining operations and cutting costs to bolster future plans.

Intel is reportedly planning to invest upwards of $100 billion in semiconductor manufacturing across four regions by 2029, a magnitude that exceeds the company's current market valuation

As part of its broader strategy, Intel aims to allocate $25 billion this year followed by an additional $21.5 billion next year, although it will need to leverage partnerships to alleviate some of its financial burdens.

As of June 29, 2024, Intel reported holding $11.287 billion in cash and cash equivalents along with $17.986 billion in short-term investments—totaling approximately $29.273 billion, which should sufficiently cover its planned capital expenditures over the next couple of years.

Qualcomm, having recently ventured into the PC chip market, stands at a market cap of around $188.2 billion, double that of IntelWall Street's pessimistic stance on Intel has created potentially lucrative entry points for interested investorsAt its current valuation, Intel's price-to-earnings ratio for fiscal year 2026 may normalize around 16.93 times earnings—a lower figure compared to Qualcomm's projected ratio of 17.31 times.

While the proposed acquisition has yet to reveal specific payment methods, the transaction could potentially eclipse Microsoft’s $68.7 billion acquisition of Activision Blizzard, setting a new record in the tech acquisition arena.

Additionally, on June 23, 2024, Qualcomm reported holding cash and cash equivalents of $7.77 billion, alongside marketable securities worth $5.262 billion—totalling $13.032 billion—an amount still below what Intel has in liquidity and short-term investments

If Qualcomm were to pursue a cash plus stock swap strategy, its relatively higher earnings valuation for FY 2026 could give it a slight edge.

Interestingly, while Intel maintains its stronghold in the PC industry, Qualcomm has made significant strides in the mobile sector, standing in sharp contrast to Intel's missed opportunitiesQualcomm has segmented its business into three primary divisions: QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing), and QSI (Qualcomm Strategic Initiatives).

During the first nine months of 2024, the QCT segment accounted for approximately 85.38% of Qualcomm’s total revenue, with the semiconductor division contributing a staggering 91.24% of the pre-tax profitsThis segment is further divided into mobile, automotive, and Internet of Things divisions, with mobile operations constituting 76.54% of total semiconductor revenue.

Whereas Intel once reigned supreme in the chip sector, it now finds itself clinging to its x86 architecture as a last line of defense in a market increasingly captivated by ARM processors

Unlike x86, ARM architecture is more efficient in terms of energy consumption and thermal managementNotably, earlier this year, Microsoft unveiled new Surface tablets powered by Qualcomm’s ARM chips, which outperformed Apple’s M3 in several benchmark tests.

Moreover, Qualcomm’s Snapdragon X series chips, released in 2023, are projected to challenge both Apple’s proprietary chips and Intel’s offeringsThe Snapdragon X Plus, introduced in April, has been touted as one of the leading AI PC chips available, positioning Qualcomm as a serious contender against Apple’s M3 and Intel’s offeringsDuring Qualcomm’s Q2 2024 earnings call, management noted the impressive performance of the Snapdragon X series in providing unparalleled functionality and personalized AI experiences—a significant milestone as Qualcomm transitions from a telecommunications company to a preeminent player in smart computing.

As Qualcomm prepares to showcase details of its next-generation Snapdragon 8 flagship mobile platform during its October summit, it will also introduce its first custom-designed Oryon CPU

This combination of NPU AI capabilities is anticipated to exceed customer performance expectations.

With Qualcomm effectively leveraging opportunities in the mobile domain while simultaneously entering the PC chip market via AI, their non-x86 approach stands in stark contrast to Intel's legacyShould Qualcomm successfully merge with Intel, it could position the combined entity as a formidable competitor across both architectural spectrums, challenging titans like Apple and AMD.

Regulatory Hurdles for the Acquisition

The complexity and enormity of this proposed transaction may significantly hinder the prospect of a successful merger between Qualcomm and Intel.

Shareholders of Intel may prioritize Qualcomm's acquisition offer, while Qualcomm's shareholders may be more concerned with the potential benefits the merger would bring to their company