Analyst: Intel (INTC.US) unlikely to be acquired by Qualcomm (QCOM.US), Apollo (APO.US) investment expected

Despite reports last week that Qualcomm (QCOM.US) was in talks to buy Intel (INTC.US), analysts believe the deal is unlikely to happen. Meanwhile, analysts believe Apollo Global Management (APO.US) could invest in Intel.

Stifel analyst Ruben Roy said: "Just like other large deals that have failed to clear the high regulatory bar, such as Nvidia (NVDA.US) buying ARM Holdings (ARM.US), Broadcom (AVGO.US) buying Qualcomm, and Qualcomm trying to buy NXP Semiconductors (NXPI.US), we believe the Qualcomm-Intel deal is unlikely to get approved by regulators."

Such a deal would allow Qualcomm to enter more semiconductor markets and bring in strategic enterprise customers. The deal would also create the world's largest semiconductor company, with Qualcomm's revenue of $33 billion and Intel's revenue of $52 billion, according to Bank of America.

However, we believe the challenges outweigh the potential benefits in a tough regulatory environment, and the scale/CPU dominance would be a negative for a potential merger between Qualcomm and Intel, according to Bank of America analysts led by Vivek Arya.

Both companies are highly dependent on sales in China, which is Intel's largest market, accounting for 26% of its revenue in 2023. Meanwhile, Qualcomm gets about 60% of its revenue from China and Hong Kong. Qualcomm's sales to Chinese smartphone manufacturers grew 40% in the first half of 2024 fiscal year.

Bank of America noted that Intel has more than $50 billion in debt, while Qualcomm has $13 billion in cash on its balance sheet, making the deal financially challenging.

It's worth noting that Apollo Global Management has considered investing up to $5 billion in Intel, according to people familiar with the matter.

Wells Fargo said the likelihood of a merger between Intel and Qualcomm is low, but an "equity investment" from Apollo is more feasible.

Wells Fargo analyst Aaron Rakers said: "We believe Apollo's investment would send a positive signal; however, the dilution of existing shareholders' equity would be a key consideration. It's worth noting that in June this year, Intel and Apollo announced a deal: Apollo would lead a $11 billion investment in Intel's Fab 34 plant in Ireland; Apollo would get 49% equity in the joint venture."