Topline
Intel stock rallied Monday as reports circulated about the future of the maligned Silicon Valley titan, though analysts question if Intel is “desperate enough” to undertake a drastic merger with its share price hovering at its lowest level in a decade.
Intel CEO Pat Gelsinger delivers a speech in June.
Key Facts
Intel stock rose 3% to $22.50 shortly after 10 a.m. EDT, hovering near its seven-week intraday high set Friday and tracking toward its highest close since Aug. 1, though shares of the semiconductor chip maker remain down 55% year-to-date.
The gains followed a pair of reports indicating outside interest in Intel as the company seeks to reverse its stock slump.
The Wall Street Journal reported Friday afternoon fellow chip maker Qualcomm approached Intel about a takeover, a report corroborated by other outlets but not commented on by other company, and Bloomberg reported Sunday that alternative asset manager Apollo Global Management has offered to make an “equity-like” investment in Intel of up to $5 billion, slightly more than 5% of Intel’s $93 billion market capitalization at Friday’s market close.
Either deal may please investors considering the shaken confidence in Intel brass — Intel shares have returned -17% over the last decade as rivals like Nvidia gained more than 25,000% and Advanced Micro Devices rose more than 4,000% — but a merger with the $190 billion Qualcomm may be untenable, according to some analysts.
An Intel and Qualcomm combination would be the largest merger or acquisition of a technology company ever, wrote JPMorgan credit analyst Christian Crosby in a Monday note to clients, adding “the path to regulatory approval [is] very time-consuming and taxing in any scenario” for the companies, especially from China with its “tense” relationship with the U.S. ahead of the election.
Bernstein analysts led by Stacy Rasgon concurred with the assessment that a green light in China would be a “long slog at least,” though U.S. regulators may be friendlier considering it’s a “merger of national champions” during the semiconductor arms race.
What We Don’t Know
If Intel is interested in pursuing a drastic deal. The Bernstein group wrote they do “not believe Intel is, at this moment, desperate for a lifeline” in a “fire sale” to Qualcomm. Intel “should have enough runway to survive” as things stand due to its major cost-cutting measures, such as announcing it will cut 15% of its workforce last month, and government subsidies, including the $8.5 billion it secured from the CHIPS Act.
Key Background
Intel is the second-worst performing stock on the S&P 500 this year, out gaining only pharmacy Walgreens Boots Alliance, and the 10th-biggest loser on the index over the last five years, a feat made worse by the more than 300% gains from shares of Silicon Valley firms like Apple, Broadcom and Nvidia. The stock struggles came as Intel grappled with a dreaded combination for any company, a continued decline in revenue and profit and a soaring debt load. Its $52.4 billion projected sales this year are on pace to be its worst top line since 2010, down 33% from its record 2020, and its $1.1 billion forecasted net income are on track to be the worst year since 1992, according to FactSet data, down 95% from 2020’s record. Previously characterized by Rasgon as a “broken” company, Intel’s financial and stock headaches came largely as the legacy chip maker struggled to keep up with competitors during the artificial intelligence boom, ceding market share; Intel CEO Pat Geslinger has previously described a “technology gap” separating Intel and its more advanced competitors. Intel’s stock posted its worst day since 1974 after its most recent earnings report, shedding more than 25%.
