Why Intel’s Future is Unlikely to Include an Acquisition by Qualcomm
Large parts of the technology industry would like to think of themselves as apolitical. Many denizens of the technology world might have no use for politics, but politics, especially of the geopolitical variety, unquestionably has use for many of them.
As geopolitical tensions between the U.S. and China intensify, narrow fissures between the two superpowers are widening into chasms. Each side, inclusive of countries firmly ensconced within their respective blocs, is attempting to establish autonomous and mutually exclusive supply chains spanning key technologies. Each side behaves as though competing in a zero-sum game. You could argue that’s not a zero-sum game, and some people have persuasively advanced such an argument, but the behavior we’re seeing suggests that a long-term split now propels technological progress along parallel, mutually exclusive paths.
Respecting the title of this post, let’s get back to Intel. The fact is, the disposition of Intel, and perhaps its fate in an international market riven by deglobalization, is defined increasingly by global geopolitical tensions.
Late last week, speculative news broke, fed by anonymous but reputedly knowledgeable sources, that Qualcomm was considering an acquisition bid for Intel. Some observers, particularly those with considerable familiarity with both companies, thought any acquisition of Intel by Qualcomm would, if it ever amounted to more than rumor, involve parts of the former rather than the company in its entirety.
A wholesale purchase of Intel by Qualcomm would cost, assuming a modest premium on Intel’s current market valuation, more than $100 billion. Qualcomm would have to incur significant debt to pull that off. Besides, it’s far from clear that Qualcomm wants all of Intel. If Qualcomm wants any of Intel, it likely wants the design part of the business, not the nascent foundry unit, which has gradually assumed a significance and a resonant value that transcends the pecuniary realm of dollars and cents.
From Intel’s perspective, the foundry is the future. But how does one get there from here, from what is an uninspiring present? It’s in that context that Intel’s own chip designs are asked to play a supporting role, keeping the lights on and the income flowing until the foundry business can operate independently and profitably. But how long will that take, and will some other bulwark or secondary fortification be needed to hold the fort and bridge the gap between the business capacity of the design business and the requirements of the foundry business?
The China Factor
This is presumably why we’re now hearing about a prospective Qualcomm acquisition of Intel. But, realistically, what are the chances of a Qualcomm acquisition of Intel? If by acquisition of Intel, we mean Qualcomm’s ingestion of Intel in its entirety, the probability percentage is low. On the other hand, if the definition of acquisition is qualified, involving only Intel’s own chip-design business, such as its legacy business of PC and server CPUs, the possibility is greater, even if it doesn’t rise to a high degree of probability. Something at Intel will have to give, though.
Nonetheless, Intel might not have to sell itself in whole or in part. Before the rumor of a Qualcomm bid for Intel arose, a report surfaced regarding a potential $5-billion investment infusion into Intel from Apollo Global Management. Is that scenario, involving investment rather than acquisition, more likely than a Qualcomm purchase of part or parts of Intel, excluding the foundry business?
To assess these two options, we have to examine exogenous factors that both facilitate and constrain certain outcomes. This is where we enter the highly contested realm of geopolitics. I’m sorry, but we have to go there. Even if we’d like to avoid it, we can’t avoid it.
Let’s start with China, which previously scotched Intel’s attempt to acquire Tower Semiconductor in 2023 for more than $5 billion. China’s motivation, then as now, is that it has no logical incentive to help Intel, the U.S. technology industry, or the U.S. government establish an autonomous ecosystem for domestic chip development and manufacture in the United States. If China demurred at Intel’s bid to acquire Tower Semiconductor, what verdict do you believe China would render on a review of a much larger, more momentous acquisition of Intel by Qualcomm?
I believe there is no way such a deal would win Chinese approval. Perhaps even a smaller deal, involving only a limited selection of Intel parts excluding the foundry business, would also receive a rejection notice from Chinese authorities. Again, China has no incentive to help Intel or to enable the broader U.S. technology ecosystem to achieve domestic autonomy; nor does China have reason to help U.S. technology companies reduce their reliance on a supply chain within China’s orbit, which, in the grand scheme of things, ultimately seems destined to include Taiwan and Taiwan Semiconductor Manufacturing Company Limited (TSMC).
Let’s now consider the U.S. government, as well as the technology industry’s interests that it is mandated to defend. What does it want to see happen at Intel?
The U.S. government and U.S.-based technology companies are deeply concerned about China’s strategic advances in technology and about the fate of Taiwan. Specifically, U.S. interests don’t wish to rely on China and Chinese companies for key parts of the technology-industry’s supply chain, particularly foundational components such as semiconductors. Taiwan has grown into a crucial manufacturer of chips, components, and systems, but Taiwan’s status, specifically in relation to China, is very much in doubt.
Consequently, the U.S. needs its own domestic supply chain for critical technological components and for the manufacture of information-technology infrastructure. This is why the survival and future prosperity of Intel are crucial to U.S. strategic concerns in information technology. Intel must endure and ultimately succeed as a U.S.-based chip foundry.
Intel: Too Important to Fail?
As a digression, though a relevant one, I’d like to briefly deconstruct a hackneyed phrase that you might be tempted to invoke in relation to Intel: too big to fail.
Is Intel “too big to fail,” like the largest banks during the financial crisis in the first decade of this millennium? No, I don’t think so. That phrase, “too big to fail,” might have been applicable to the travails of the financial crisis, but it doesn’t fit the geopolitical and technological chess match that are witnessing today between the U.S. and China.
From the U.S. perspective, Intel, as an aspiring U.S.-based chip foundry, potentially growing into a powerhouse that can propel a broad cross-section of the U.S. technology ecosystem, is not really too big to fail. Not too big, no, but it is too important to fail.
Intel seems predestined to become integral, fundamentally essential, to U.S. strategy and tactics in what is rapidly devolving into an Information Age Cold War. So, no, Intel is not too big to fail, but it is being cast as an indispensable link in a domestic supply chain, enabling a continuous flow of IT infrastructure from sellers to buyers.
If you’re an investor, and you have a long enough time horizon – I’m envisioning an investor that doesn’t mind buying green bananas and keeps his or her portfolio unchanged for years at a time – you could do much worse than putting money into Intel. It has the backing of the U.S. government and the implicit support of a prosperous domestic technology ecosystem that highly motivated to keep Intel among the living.
Relations between China and the U.S. are poor and getting worse. We can argue about who initiated hostilities, or about how blame should be apportioned, but that’s not the point of this post.
The fact is, we’ve reached a chronic stage of reciprocal recrimination, riding a vicious cycle that will get worse before it has any prospect of getting better. China is making it harder for U.S.-headquartered technology companies to thrive in the PRC, while the US applies staggering tariffs to Chinese technology imports (including EVs) and punitively restricts the export of certain technologies (chips, chipmaking equipment, etc.) to China. Each move triggers a countermove in a graceless, grappling pas des deux. To mix metaphors mid paragraph, fissures have become chasms, and positions are hardening as the distance grows.
Geopolitics and Tech
Calculated geopolitical brinkmanship is in full effect, but it’s a dangerous game based on necessarily imperfect assumptions about how the other side will react. Nobody knows, with any certainty, where it’s all leading, but we know it probably doesn’t bring us to a geopolitical neighborhood blessed with amity and trust.
Now that I’ve said nobody knows where the U.S.-China hostilities will end, let me make a more modest forecast regarding Intel’s fate. An acquisition by Qualcomm is a non-starter, unless Qualcomm agrees to take pieces of Intel rather than Intel in its entirety. Even then, China might scupper the sale, seeking to preclude Intel from tapping the capital it needs to remain on course with the development of its foundry business. Remember, China has blocked an acquisition involving Intel before, and the likelihood, given the frigidity of relations between the superpowers, is that will not hesitate to do so again.
China, however, cannot stop an investor from pumping money into Intel, and, as we’ve already deduced and discussed, the U.S. government (and a vast U.S.-based technology industry that increasingly lobbies for the favor of the U.S. government) will be keen to ensure that Intel’s foundry business receives the capital it needs to endure and come to fruition. The U.S. government has already indicated strongly that it wants Intel to succeed in the realization of its foundry ambitions.
What that means, I believe, is that Apollo’s investment proposal, or something quite like it, will ultimately win the day. All the pieces fit together. Intel needs the financing, Apollo will know its investment is safe, and the U.S. government will not have to worry about China quashing the arrangement.
The technology industry is not an island. Anybody who wishes to persist in viewing it as an island will be compelled to concede that it is now an island surrounded by sharks and suffering acute soil erosion, with some of its estates, like those on the Outer Banks, it risk of getting swamped in the maelstroms of a rising tide. Intel is one property that the U.S. government will not allow to be swept into a roiling sea.
If globalization is not stone-cold dead, it’s moribund. We’ve entered an era of oppositional trade blocs, enlivened by strident bouts of petulant protectionism. Amid the reciprocal and intensifying antagonisms, the technology industry, which provides the digital means of corporate competitive advantage and modern statecraft, finds itself in the eye of the storm. If you recognize these dynamics, you will appreciate why Intel will find its way, though perhaps not through traditional means, to a viable future.