Intel, Which Cratered Around 77% From Its 52-Week Peak, Finds A New Knight In Shining Armor As Qualcomm And Apollo Propose Buyout Deal, But This Analyst Thinks It Doesn't Make Sense: 'It Seems Very Risky To Us Given Uncertain Returns'

Qualcomm Inc. QCOM is reportedly considering a buyout of Intel Corp. INTC, a move that could significantly diversify Qualcomm’s product offering. However, analysts are warning of potential challenges that could hinder the success of this acquisition.

What Happened: Qualcomm’s interest in acquiring Intel has been met with skepticism from analysts, reported Business Insider. The potential deal, which could help Qualcomm expand, is seen as a risky move due to Intel’s struggling semiconductor manufacturing unit.

Intel’s shares have plummeted approximately 77% from their 52-week high, making the company an attractive target not just for Qualcomm but also for Apollo Global Management APO, which reportedly proposed to make an equity-like investment of up to $5 billion in the company.

However, Stacy Rasgon, a prominent chip analyst from Bernstein, expressed skepticism about the potential deal. “We would prefer that Qualcomm not pursue this as it seems very risky to us given uncertain returns,” Rasgon and his team wrote.

Qualcomm aims to diversify its revenue streams by entering the PC and data center markets, which Intel dominates. However, Intel’s semiconductor factories, or fabs, pose significant challenges. Rasgon noted that Intel has struggled to manage its fabs, allowing competitors like TSMC to gain an edge.

Rasgon also highlighted the political importance of Intel’s U.S.-based fabs in Arizona, Oregon, and New Mexico. He speculated that Qualcomm might sell these fabs if the acquisition goes through, but questioned whether Intel is desperate enough to consider such a move.

“Is Intel desperate enough to seriously consider something like this? We’re not so sure,” Rasgon and his team concluded.

Why It Matters: The potential acquisition of Intel by Qualcomm could face significant hurdles, according to analysts. The deal could reportedly encounter rigorous antitrust scrutiny globally, given that it would merge two major chip firms. This could create a giant with significant market shares in smartphones, PCs, and servers.

Benchmark analyst Cody Acree said the acquisition is “logically unlikely.” According to Acree, Qualcomm would need to offer a compelling 40% to 50% premium over the current trading price of around $22 for shareholders to take the deal seriously. However, the regulatory scrutiny surrounding the transaction may be too difficult to overcome.

Meanwhile, Intel has been facing its own challenges, with CEO Pat Gelsinger presenting a comprehensive plan to the board in September. The plan focuses on asset sales and cost reductions, including halting a $32 billion project in Germany.

If the Qualcomm-Intel deal goes through, it could result in one of the largest M&A deals ever, surpassing Microsoft Corporation’s $69 billion acquisition of Activision Blizzard.

Price Action: Intel’s shares closed 3.3% higher on Monday at $22.56, while Qualcomm’s shares closed 1.75% lower at $165.96, according to Benzinga Pro data.

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