The semiconductor industry is attracting attention with reports that Qualcomm, a US leader in mobile devices such as smartphones, tablets and communications, is seeking to acquire Intel, an integrated semiconductor company (IDM) whose business scope includes processors for personal computers and servers.

Reuters reported earlier this month, citing an unnamed official as saying that "Qualcomm is seeking to acquire some of Intel's business units." The Wall Street Journal (WSJ) went a step further and reported on the 20th that "Qualcomm is trying to acquire Intel's entire business."

Although Qualcomm has advantages in the SoC field of smartphones and tablets, its PC market share is negligible. On the other hand, Intel is a giant that has dominated the PC and server markets for more than 30 years. When the capabilities of the two companies are combined, a huge semiconductor company with influence in various fields will be created.

However, there are still many practical obstacles to overcome, such as the management rights provisions in the cross-licensing regulations signed by Intel and AMD in 2009, the review of business mergers by competition authorities in various countries, and the issue of selling foundries. Among them, US government subsidies were invested.

01 Intel-AMD in 2009

In 2009, Intel and AMD jointly used the IP of the two companies through cross-licensing.

If Qualcomm attempts to acquire Intel, the first issue that will arise is the cross-licensing agreement between Intel and AMD in 2009. All PC and server processors released by Intel contain IP (intellectual property) issues related to x86-64 instructions.

Intel developed IA-64, a 64-bit instruction system that is incompatible with the 32-bit instructions that began with the 80368 processor, and applied it to server processors such as Itanium, but it failed to gain popularity.

The 64-bit instructions of Intel processors currently used in PCs and servers are a cross-licensed implementation of AMD64, a 64-bit instruction developed by AMD in 2004. The feature of AMD64 is the ability to utilize more than 4GB of memory when running 32-bit applications.

02 "Cross License Termination" Clause

Problems with "cross-license termination" clauses arise when there is a change in management rights.

Intel and AMD freely use x86 (32-bit) instructions and x86-64 (64-bit) instructions under a cross-license signed in 2009. However, the cross-license contains a clause that the cross-license will be terminated if the governance structure of Intel or AMD changes.

If Qualcomm wants to produce server processors based on the 64-bit (AMD64) instruction system, it must renegotiate the cross-license with AMD.

If AMD does not agree, Qualcomm must produce server processors based on Arm IP. There may be a situation where small and medium-sized companies or individual users who cannot quickly convert x86-based software to Arm-based software turn to AMD Ryzen/Epic (EPYC).

If AMD refuses the cross-license, Qualcomm can invoke its FRAND obligations to enter into a "fair, reasonable and non-discriminatory" contract for standard patents and file a lawsuit. However, legal disputes over patent rights take a long time and are mostly resolved through out-of-court settlements.

Qualcomm has already had a legal dispute with Arm over the Oryon CPU IP that it developed itself after acquiring Nuvia. Arm sued Qualcomm and Nubia for violating the licensing agreement in late August 2022, and Qualcomm also sued Arm, and the litigation is still ongoing.

03 US government-subsidized foundries

There are also problems with foundries that sell products subsidized by the US government.

If competition authorities in various countries approve the acquisition on the condition that Intel's business units are sold, the foundry business unit is most likely to be the target.

Among Intel's foundry facilities, the 3nm-level and below process facilities that will generate profits in the next few years are currently located in the United States and Ireland. Among them, the US facilities received subsidies related to the Biden administration's semiconductor support bill.

If Taiwan's TSMC or Samsung Electronics tries to acquire it, it is very likely that it will not be approved due to semiconductor security logic.

It is unclear whether Qualcomm will be able to afford large-scale facility investment in the future. Intel has reduced costs by co-investing with external investors such as Brookfield Asset Management, but despite this, it still invests about US$10 billion (about 13.36 trillion won) every quarter.

The 14nm transfer process, which is not currently producing flagship products, may be sold. However, the 3D semiconductor technology "FOVEROS" uses the basic blocks produced by Intel's 22nm process. It is also questionable whether it can be sold separately.

04 Stock Exchange Acquisition

When acquiring through a stock exchange, shareholders around the world need to be convinced.

Currently, Qualcomm's market value is about $188 billion, and Intel's market value is $93 billion. On the other hand, according to Qualcomm's second quarter (third quarter of fiscal year 2024) results released at the end of July, Qualcomm's current cash assets are $7.8 billion (about 10.42 trillion won).

If Qualcomm wants to acquire Intel, the most reasonable option is to invest about half of its market value in the form of stock transactions. However, institutional investors currently hold 59.5% of the total 1.114 billion shares of Qualcomm's common stock (A shares).

The largest shareholder, the US asset management company Vanguard Group, also holds only 112.07 million shares, accounting for about 10% of the total share capital. In order to acquire Intel, Qualcomm must convince banks and asset management companies around the world, including Vanguard Group.

05 Guo Mingqi Said

Ming-Chi Kuo: "Qualcomm's motivation to acquire Intel is not strong"

Qualcomm plans to lay off about 220 employees at its San Diego headquarters in November, and 1,250 employees in October last year, due to declining demand for smartphones. It is also questionable whether the Intel acquisition can proceed under such circumstances.

Hong Kong Tianfeng Securities analyst Guo Mingqi predicted on his social media "Medium" account on the 22nd that "Considering the review of business mergers in various countries, Qualcomm's acquisition of Intel is unlikely to be completed within the year." In the short term".

He continued, "Even if Qualcomm sells Intel assets to reduce the financial burden of the acquisition, it will be difficult to make a quick decision, and the uncertainty of the acquisition process will also have a negative impact on Qualcomm's stock price. There is no strong support. "Incentives for Qualcomm to acquire Intel." Highly praised.

In response to ZDNet Korea's inquiries about the Wall Street Journal and CNBC reports, Intel said, "We will not respond to market rumors," while Qualcomm responded, "We have nothing to respond to."

Reference link: https://zdnet.co.kr/view/?no=20240923135937

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