[Chip Talk] The Humiliation of the 'Semiconductor Kingdom' Intel... Until Receiving an Acquisition Offer from Qualcomm

Intel, facing its worst crisis in 56 years since its founding, is being pushed toward a potential acquisition by Qualcomm. After failing to properly respond to the artificial intelligence (AI) boom and selecting foundry as a core business to regain semiconductor dominance, Intel has been hampered by massive investment costs and technological gaps. Although Qualcomm's attempt to acquire Intel is likely to be blocked by antitrust laws, the very fact that Intel, once known as the 'semiconductor kingdom,' is facing an acquisition crisis is considered humiliating.

According to industry sources on the 23rd, the Wall Street Journal (WSJ) recently reported, citing insiders, that Qualcomm has discussed early-stage plans to merge with Intel, which is currently experiencing difficulties. While the insiders did not reveal whether actual talks or deal terms took place, they confirmed that contact between the two companies occurred.

Intel's market capitalization exceeds $90 billion (approximately 120 trillion KRW). If this acquisition is completed, it would be the largest M&A deal in recent years, considered a 'deal of the century.'

The industry analyzes Intel's downfall as a result of strategic mistakes and failure to respond to the AI boom. Intel, based on the 'Wintel (Windows + Intel) alliance' with Microsoft (MS), maintained an overwhelming number one position in the PC and server central processing unit (CPU) markets until the mid-2000s.

However, by resting on the PC market, Intel failed to properly respond to the growth of the mobile chip market. Intel still holds a 75% market share in the x86 architecture-based PC and server CPU markets, but since the 2010s, competitor AMD has been closing in, steadily taking away market share that once exceeded 90%. Intel's expected revenue from the data center segment this year is $12.6 billion, likely to be surpassed by AMD's $12.9 billion. Furthermore, Intel has failed to read the market changes brought by the AI boom, resulting in a minimal presence in the AI chip market dominated by Nvidia.

Responsibility is also being attributed to 'old boy' CEO Pat Gelsinger, who was expected to be a savior. Pat Gelsinger (63), Intel's CEO, invested billions of dollars in the foundry business after taking office three years ago. However, as Intel failed to enter the fiercely competitive foundry market dominated by TSMC, South Korea's Samsung Electronics, and Chinese companies, Gelsinger admitted, "Foundry is a service business and not part of Intel's culture." Intel has poured $25 billion (about 33 trillion KRW) into the foundry business over the past two years but has yet to achieve significant results. Additionally, efforts to strengthen competitiveness through acquisitions of GlobalFoundries and Tower Semiconductor were ultimately unsuccessful. Notably, Intel also failed to provide chips necessary for Tesla's autonomous driving in automobiles.

Ultimately, last month Intel announced a large-scale restructuring plan to lay off 15,000 employees next year, cut company costs by $10 billion, and abolish shareholder dividends. In announcing this plan, CEO Gelsinger confessed, "The AI boom was much more rapid than expected, and we must adapt to this situation."

The semiconductor industry evaluates that if Qualcomm succeeds in acquiring Intel, Qualcomm's semiconductor business scope will instantly expand. It would incorporate not only mobile but also personal computer (PC) and server semiconductors, which are gaining more attention in the AI era.

Qualcomm is the world's number one company in the application processor (AP) market, which is the brain of smartphones, holding a 36% share (Counterpoint Research). Although Taiwan's MediaTek (32%) leads Qualcomm (31%) in AP shipment share, Qualcomm leads in revenue as it mainly produces APs for premium smartphones. Its market capitalization reaches $188 billion, twice that of Intel.

Qualcomm has produced mobile APs based on the intellectual property (IP) of the British company Arm but has sought changes in recent years. After acquiring semiconductor startup Nuvia in 2021, Qualcomm applied the Orion CPU to PC chips and declared an 'Arm escape,' stating it will use Orion instead of Arm for APs in the future. Qualcomm and Arm have been engaged in a patent lawsuit for three years over whether Qualcomm can use Arm technology previously used by Nuvia. If Qualcomm acquires Intel's Consumer Computing Group (CCG), it could absorb Intel's abundant design technology and accelerate independence from Arm.

However, foreign media such as WSJ analyze that the acquisition faces high barriers, including antitrust reviews by competition authorities. Even if Intel agrees to be acquired, mergers of such a massive company in the semiconductor industry are rarely approved. Sources who reported the acquisition proposal also cautioned that the deal is not certain, WSJ reported.

Above all, it is widely believed that passing China's antitrust authority approval will be difficult. Both companies have previously failed to acquire other companies due to China's antitrust authorities. Intel failed to acquire Israel's Tower Semiconductor, and Qualcomm failed to acquire the Dutch semiconductor company NXP Semiconductors. Moreover, Intel's recent $3 billion contract with the U.S. Department of Defense to supply advanced defense semiconductors, directly related to U.S. national security, also complicates Intel's sale.

If Qualcomm pushes forward with the Intel acquisition, it may have to give up some of Intel's assets to avoid antitrust sanctions from various countries. WSJ stated, "It is uncertain whether the deal will proceed," but "the very fact that acquisition talks have emerged shows that Intel is experiencing its most severe crisis in its 50-year history."