Intel Acquisition by Qualcomm: A Potential Challenge to Nvidia

Shares of Intel jumped 3% Friday as reports emerged that Qualcomm has approached Intel about acquiring it for perhaps as much as ninety billion dollars, citing multiple unnamed sources.

The massive deal is financially daunting, as Qualcomm has just thirteen billion in cash and equivalents on its balance sheet against thirteen billion of long-term debt. Even a mostly-stock exchange would require some large debt raise. Intel, moreover, already has nineteen billion dollars of net long-term debt.

The deal is much larger than Qualcomm's attempted acquisition of NXP Semiconductor in 2016 for $38 billion. That was initiated at a time when Qualcomm had an enormous amount of cash trapped overseas prior to 2017’s Tax Cuts and Jobs Act that let Qualcomm bring it back to the U.S.

What Qualcomm needs most is diversification, as it is still considered by investors to be a cell-phone chip maker.

Financial Profiles of Intel and Qualcomm

Buying Intel would immediately make the company the top PC microprocessor and server processor vendor, which would certainly change the profile of Qualcomm.

The Manufacturing Gap

Qualcomm, which has no factories of its own, offers nothing to help Intel regain its manufacturing prowess. While it is possible Qualcomm's higher-margin products could give Intel a much needed financial lifeline, it's uncertain if financial investment is the ultimate solution.

The AI Challenge from Nvidia

Neither company has the individual strength to rival Nvidia's dominance in AI, despite both having significant resources in this area.

The Vision Ahead

There's potential for a strategic alliance to leverage Intel’s server data and Qualcomm's mobile chips to challenge Nvidia in the emerging AI at the edge market, where both could innovate in mobile AI processing.

Conclusion on Financial Implications

For the moment, Qualcomm investors don’t see too much to cheer about, as Qualcomm stock was down 3% on the news.