October 2, 2024

First Cuts: Intel’s Future: Acquisition or Infusion of Funds?

Topic: AI Architectures and Platforms
Issue: How will technologies change to enable new AI architectures and platforms?

Intel’s Future: Acquisition or Infusion of Funds?

Summary: The semiconductor industry is abuzz with rumors of Intel’s potential acquisition, a once unthinkable scenario for the chip giant.

Event: The Wall Street Journal indicated Qualcomm’s interest in acquiring parts or all of Intel, while Bloomberg reported that Apollo Global Management is considering an equity investment of up to $5 billion.

Analysis: Rumors of potential changes in Intel’s ownership have sent shockwaves through the tech world, raising questions about Intel’s future and the broader implications for the chip market.

Intel Missteps Transitioning to GPU

Much of Intel’s vulnerability stems from Intel’s lackluster response and execution to the market shift to the GPU chip, which has become critical for supporting AI applications and technologies.

Intel’s Arc Alchemist GPUs have had a staggered release, and it is only for mobile and desktop systems.
Intel’s Intel Ponte Vecchio was an extremely limited release.
Intel’s Falcon Shores is planned for 2025

In addition, Intel has struggled with its manufacturing processes; the Arc Alchemist launch was plagued with driver issues and optimization challenges, which impacted performance and stability.

In addition, Intel’s production of some of its base CPU chips were plagued with issues, including several bugs that affected reliability, scalability, and performance in its 13th and 14th Gen Raptor Lake CPUs and Sapphire Rapids Server CPUs

These significant missteps have left the door wide open for AMD and NVIDIA to gain significant market share and left Intel stumbling financially.

What Has Been the Impact on Intel’s Revenues?

After reaching record revenue in 2021 ($79 billion), driven by strong PC demand during the pandemic, the company began to face significant headwinds.

In 2022, Intel’s revenues were $63.1 billion (down 20% year-over-year). Its net income was $8.0 billion (down 60% year-over-year), and earnings per share were down 60% yr/yr.

In 2023, Intel’s revenues were $56.4 billion (down 11% year-over-year). Its Net Income was $1.5 billion (down 81% year-over-year) and earnings per share were down 81% year-over-year.

In Q1 2024 revenue: $11.7 billion (down 36% year-over-year), and the company faced a net loss of $2.8 billion.

Why Would Qualcomm and Apollo Be Interested in Intel?

If Qualcomm were to acquire Intel, or parts of it, they could gain access to advanced chip manufacturing capabilities and a broader portfolio of products, potentially strengthening its position in the server and PC markets. However, such a massive acquisition would face significant regulatory hurdles and integration challenges.

If equity investment from Apollo jumped in to take over the business by providing Intel with much-needed capital to fund its turnaround efforts and invest in advanced manufacturing technologies, the firm would very likely take Intel private so Apollo would have more control and flexibility to implement a turnaround strategy without the scrutiny and short-term pressures of the public market. For Apollo, this could represent a lucrative investment opportunity in a company with significant potential for recovery.

What Are the Most Likely Scenarios for Intel?

Clearly, Intel’s future remains uncertain. However, Intel cannot continue its current trajectory.

We see two possible scenarios for Intel:

An acquisition by Qualcomm (or a similar technology provider) seems less likely due to the immense size and complexity of such a deal, as well as potential regulatory hurdles (35% probability).
An equity investment from Apollo (or a similar investment entity) is more plausible, as it can provide Intel with financial resources and potentially influence its strategic direction (65% probability).

What Is the Impact on the Semiconductor Market?

The potential acquisition of Intel has far-reaching implications for the semiconductor chip market. It could lead to further consolidation in the industry, potentially reducing competition and impacting pricing dynamics.

Depending on the acquirer and their strategy, it could either accelerate or hinder innovation in the chip market.

Moreover, a change in Intel’s ownership could impact the global semiconductor supply chain, potentially affecting chip availability and pricing for various industries.

What Is the Risk for Intel Customers?

For Intel’s partners and customers, the uncertainty surrounding the company’s future is creating anxiety.

These customers and partners rely on Intel’s products and technologies, and a potential acquisition will impact the company’s product roadmap and future development plans, affecting customers’ long-term strategies.

Changes in ownership could also lead to changes in support and services provided to Intel’s partners and customers.

Aragon Advisory

Current Intel Partners and customers must prepare for the very likely scenario of changes to Intel’s financial structure, strategic direction, and governance.

This means:

Understand your current strategic investment and risk portfolio in Intel for each of these scenarios.
Ensure your contacts for Intel products and services are up-to-date, and if needed, renegotiate terms and conditions that account for the likely scenarios.
Define strategies and plans to move to alternative chip providers as needed.

Bottom Line

The coming months will be crucial for Intel as it navigates these uncertainties and determines its future path.

Both potential scenarios highlighted here will have significant implications for the company, its stakeholders, and the broader semiconductor industry.

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