As Broadcom Ltd. (AVGO) continues its hostile takeover attempt for competitor Qualcomm Inc. (QCOM), Intel Corp. (INTC) may consider getting in on the action, according to a report by the Wall Street Journal, citing people familiar with the matter. (For more, see also: Tax Cuts Prompt Biggest Merger Spree in Decades.)
Bid for Supplier Contracts
At the core of the battle among semiconductor manufacturers is the competition to win supplier contracts with smartphone makers such as Apple Inc. (AAPL) and Samsung Electronics Co. for critical cellular components. The bid, which would rival Broadcom's $117 billion offer, is far from guaranteed to happen, according to the WSJ's sources, and would combine Intel's near $240 billion market capitalization with Qualcomm's current market value of about $93 billion. A merger with Broadcom, with a market cap of $108 billion, poses as a threat for Intel as it battles against the two in making equipment for wireless devices.
Cellular communications chips from Intel, which has been diversifying away from its legacy business of supplying chips for PCs and data-center servers, have successfully replaced Qualcomm' chips in a portion of Apple's iPhones. In the case that Broadcom succeeds in acquiring Qualcomm, tensions regarding the latter company's ongoing legal dispute with Apple could subside, limiting more market share gains from Intel.
In taking over Qualcomm, Intel would play catch-up in the mobile space, as the former is a leader in making chips that run on apps and manage cellular communications in smartphones. Qualcomm also currently competes against Broadcom in making chips for short-range wireless networking such as Bluetooth and WiFi, as well as radio filters and other chips that condition cellular signals. (For more, see also: Intel a ‘Top Pick’ Despite Poor Sentiment: Citi.)
That being said, a potential bid for Broadcom would be Intel's largest acquisition to date, and would be subject to regulatory approval. It is also likely that the Santa Clara, Calif.-based company could decide to make other, smaller acquisitions to hedge against its competition. This route would follow the company's recent acquisition spree, including the $15.3 billion it spent on Israel-based Mobileye NV, a maker of cameras for autonomous cars, in August. Three years ago, Intel bought programmable chipmaker Altera Corp. for $16.7 billion in a bet on the internet of things (IoT).
Further, if Broadcom fails in its hostile takeover, Intel could remain pleased with the status quo and choose to take no action, suggests the WSJ.
Amid the increasingly complicated and disrupted chip industry, Qualcomm has made a separate offer to buy NXP Semiconductors NV (NXPI) in a deal worth $44 billion, which Broadcom has publicly criticized. Last week, both firms released announcements with the intent of winning support from shareholders and regulators. The news comes as CNBC reported on Monday that CFIUS pressure on Broadcom "appears to be growing," lessening the chances for a deal to go through.