Intel acquisition reporting is following a predictable pattern. The path from initial news stories to a transaction—if there is one—often follows the above figure’s sequence, reflecting the underlying process. An acquiring company approaches its target, and its interest leaks to the press. The deal’s scope could enlarge or shrink, leading to further reporting. Put into play, the target gets bids from other potential suitors. The ultimate acquirer and the target anonymously float deal terms and gauge the reaction. Finally, they announce a transaction. Along the way, talks can derail.
The Candidates, So Far
To date, the press has reported numerous potential deals:
- Qualcomm—Initially the story was the phone-chip maker and PC-processor upstart was looking at Intel CCG, the PC processor business. (Step 1 in the pattern.) Subsequently, reports stated Qualcomm was interested in the whole company (Step 2).
- Broadcom is reportedly not interested in acquiring Intel, indicating it’s begun to think about a bid, a Step 4 development.
- Apollo may invest in Intel, another Step 4 development.
Meanwhile, Marvell was said to be interested in acquiring Intel’s gate-array business Altera. Because Intel was already in the process of hiving off Altera, this is a side deal that won’t affect the overall pattern. Targeting network OEMs, building an automotive-semi business, and having a custom-silicon operation, Marvell could benefit from Altera.
Key Questions
Important questions to ask when evaluating an acquisition:
- Does the combination have product-development synergies or cross-selling opportunities?
- Does the acquirer help solve the target’s problems?
- Can the acquirer successfully execute the merger?
What Makes Sense?
On these questions, a Qualcomm-Intel tie-up scores low. Broadcom scores higher. Through its custom-silicon business, it’s a major supplier of data-center NPUs—an area where Intel lags but that complements its Xeon processors. Also complementary are Broadcom’s networking products. Moreover, Broadcom is a conglomerate with acquisition experience and a reputation for fat trimming. Nvidia’s data-center unit would also be complementary, and its discrete PC-GPU business is squeezed by PC processors continually raising their GPU performance. The company lacks acquisition experience, and its flat management style wouldn’t work with an operation Intel’s size. A private-equity infusion could make more sense if it gives Intel time to right itself and targets a specific goal, such as spinning out manufacturing.
It’s a bad time for Intel to be acquired. It has problems and must change, but its situation isn’t dire. Although unprofitable, the company’s operations generate cash. Management attention devoted to an acquisition is attention not spent on improving the business. A deal could take years to run its course; meanwhile malaise would set in—the worst outcome for a company needing to change.