Qualcomm acquires Intel? Guo Mingchi said Qualcomm should not have a strong motivation to carry out mergers and acquisitions

According to the Zhitong Finance APP, it was revealed by informed sources that Qualcomm (QCOM.US) has explored the possibility of acquiring part of Intel's (INTC.US) chip design business to expand its product portfolio. Insiders mentioned that Qualcomm executives are very interested in Intel's client PC design business, but they are considering all design departments of the company. Intel is currently striving to generate cash and seeking to divest business units and sell other assets.

With a market value of $184 billion, Qualcomm is well-known for producing smartphone chips, with Apple being one of its customers. Insiders stated that Qualcomm's interest and plans regarding Intel have not been finalized yet and may change.

In addition, Intel announced disastrous second-quarter results last month, including a 15% workforce reduction and suspension of dividend payments. Executives are working on how to continue funding the company's manufacturing plans and generating cash. Last year, in the overall weak personal computer market, Intel's client PC business revenue dropped by 8% to $29.3 billion.

Renowned Apple analyst Ming-Chi Kuo from TF International Securities expressed his views on the rumors of Qualcomm seeking to acquire Intel on the social platform X today. He mentioned that acquiring Intel would only benefit Qualcomm's AI PC chip business, but considering Microsoft's commitment to WoA (its latest Surface models all use Qualcomm processors/ARM architecture), Qualcomm's growth in the PC market is just a matter of time.

Kuo also pointed out that considering Intel's market value of about $93 billion, this acquisition would put significant financial pressure on Qualcomm and immediately impact its profitability, with net profit margins possibly dropping from the current 20%+ to single digits or even losses (foundry business being the biggest burden).

Kuo stated that given the anticipated antitrust investigations in various countries, it would be challenging for this acquisition to be completed in the short term. Therefore, Qualcomm may not have a strong motivation to acquire Intel, as this acquisition would be a disaster for Qualcomm if it were to happen.

The following is the original content by Ming-Chi Kuo:

Qualcomm's current key focus is to establish competitiveness in AI chips

1. Device-side AI smartphone chips: Qualcomm has a strong advantage in this area and is Apple's biggest competitor.

2. Device-side AI PC chips: With the gradual optimization of WoA (Windows on ARM), Qualcomm's advantage will gradually emerge.

3. AI server chips: Qualcomm's weakness.

In the era of AI, Qualcomm's best strategy is to quickly monetize through mobile AI chips, continue to promote PC AI chips, and simultaneously build an advantage in the device-side (mobile + PC) AI ecosystem, while rapidly strengthening its server AI chip advantage through investments and acquisitions.

Acquiring Intel would only benefit Qualcomm's AI PC chip business. However, considering Microsoft's commitment to WoA (its latest Surface models all use Qualcomm processors/ARM architecture), Qualcomm's growth in the PC market is inevitable. While acquiring Intel could rapidly expand Qualcomm's PC market share, the cost is high, and even without this acquisition, Qualcomm can grow in the AI PC market based on its own strength Intel's dominant position in the general server market has limited appeal to Qualcomm. AI servers are the future star of the server market, and coincidentally, AI servers are currently a weakness for Intel.

Qualcomm has approximately $13 billion in cash, cash equivalents, and marketable securities, with a market capitalization of about $190 billion. Even if we first ignore the premium brought by mergers, derivative costs, debt assumption, and subsequent management costs, looking solely at Intel's market capitalization of about $93 billion, this merger would put tremendous financial pressure on Qualcomm and immediately impact profitability, with net profit margins possibly dropping from the current 20%+ to single digits or even losses (semiconductor foundry business being the biggest burden).

Qualcomm's latest quarter capital expenditure is about $390 million. Using the funds for acquiring Intel (estimated to be over $100 billion) to expand capital expenditure and pursue growth in AI PCs and AI servers would lower risks and increase management efficiency.

Considering the antitrust investigations in various countries, it is difficult for this merger to be completed in the short term. Even if Qualcomm sells some Intel assets to reduce the financial and management pressure brought by the merger, this cannot be finalized overnight. The uncertainties mentioned above during the merger process are not conducive to a positive trading atmosphere for Qualcomm's stock price.

Therefore, it seems that Qualcomm may not have a strong motivation to acquire Intel. If this merger were to happen, it could be a disaster for Qualcomm. Based on my research and understanding, Qualcomm internally holds a negative attitude towards acquiring Intel. Thus, the rumor I heard may be correct, that Qualcomm is cautiously and passively evaluating the feasibility of acquiring Intel due to some "unavoidable external pressure."