Wall Street analysts threw cold water on speculation that smartphone chip leader Qualcomm could buy PC and server chip giant Intel. Qualcomm stock fell Monday while Intel stock rose.
The Wall Street Journal reported late Friday that Qualcomm had approached Intel about a potential deal in "recent days." The article did not say if Intel was receptive to the overture.
However, analysts said a potential Qualcomm takeover of Intel would be problematic for a number of reasons. Chief among them are antitrust concerns that would make getting government regulatory approvals difficult, especially in China. Financial considerations are another major hurdle.
Jordan Klein, a trading-desk analyst with Mizuho Securities, said a Qualcomm takeover of Intel is a "pipe dream" and never going to happen given the financial and regulatory challenges.
Qualcomm Should Buy Marvell Instead
Qualcomm's interest in Intel is about diversifying its business from smartphone and wireless technologies into areas like personal computers and data center servers, multiple analysts said.
If Qualcomm wants diversification, it should purchase Marvell Technology instead, Klein said in a client note. That acquisition would give Qualcomm exposure to artificial intelligence and data center markets at a more reasonable price, he said.
Investment bank Benchmark called an Intel takeover by Qualcomm "unlikely." The firm rates Intel stock as hold and Qualcomm stock as buy.
On the stock market today, Intel stock advanced 3.3% to close at 22.56. Meanwhile, Qualcomm stock sank 1.8% to 165.96.
Intel Stock Rated Underperform
BofA Securities analyst Vivek Arya called a possible Qualcomm-Intel deal "intriguing but perhaps impractical." He reiterated his underperform rating on Intel stock and buy rating on Qualcomm stock.
The regulatory and financial hurdles of an Intel acquisition outweigh the positive scale benefits of the deal for Qualcomm, Arya said.
Plus, Intel is saddled with weak financials including $53 billion in debt and large capital expenditure requirements to support its chip foundries, he said.
Apollo Shows Interest In Intel Stake
On Sunday, Bloomberg reported that Apollo Global Management is considering up to a $5 billion equity-like investment in Intel. That's a more likely scenario than an acquisition of Intel, several analysts said.
"We see Apollo's offer as a far more likely outcome," Wedbush Securities analyst Matt Bryson said in a client note.
Barclays analyst Tom O'Malley said the Qualcomm and Apollo dalliances are probably the first in what's likely to be "protracted speculation" around Intel.
The troubled chipmaker is struggling through lackluster PC chip demand and weak server chip sales. At the same time, it is trying to modernize its semiconductor foundry operations. Intel has been a laggard for years after missing out on the smartphone and AI computing shifts.
In a client note, Rosenblatt Securities analysts Kevin Cassidy and Hans Mosesmann said Qualcomm probably is only interested in acquiring certain Intel technologies, such as servers, but not the whole company.
Intel stock ranks No. 15 out of 32 stocks in IBD's semiconductor manufacturing industry group, according to IBD Stock Checkup. It has a poor IBD Composite Rating of nine out of 99.
Meanwhile, Qualcomm ranks No. 11 out of 39 stocks in IBD's fabless semiconductor group. Qualcomm stock has a mediocre Composite Rating of 70.
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