Intel/Qualcomm: The Last Big Move
The glorious, storied semiconductor industry has many more moves to play. But for the foreseeable future yesterday’s news about the new Broadcom reminds us that everyone is playing one big game of consolidation.
In that game there is one last really big move. A combination of Intel and Qualcomm could be the last of the big time mergers in semiconductors. There will no doubt be lots more combinations, but none as large or significant.
The Intel/Qualcomm merger makes sense for a number of reasons. Intel owns computing from the data center down to the notebook but has been unable to establish a position in smartphones. Qualcomm owns the smartphone space but has no real prospects in today’s other huge growth market, cloud computing.
The merged company would be a leader in computing from head to toe. Intel could scrap its loss-making efforts to drive the x86 into mobile and IoT and Qualcomm could end or at least scale back its efforts to design ARM-based server SoCs, which have a very small market for the foreseeable future.
Intel could also rationalize its Wi-Fi group, merging its products into the Qualcomm Atheros line up. The merger of the Intel (former Infineon) and Qualcomm LTE products might be trickier but should also result in a net savings.
Incidentally, the two companies would have synergy in a range of embedded markets such as comms that are consolidating around the x86 and ARM. The Intel/Qualcomm deal would be a nightmare for AMD, which is trying to stake out this position now.
Finally, the merger would help Intel pay for and cement its position as the world’s biggest maker of chips. The Qualcomm business would help Intel fill its existing fabs and pay for expanded versions of fabs for the 10, 7 and 5nm nodes. In this way, the merger would deal a blow to Intel’s fab rivals, primarily Samsung and TSMC.
Sure there are plenty of reasons why this mega-merger may not happen.
It would take an amazing amount of creative financing. The company cultures are not well aligned, to put it politely. The merger would face an incredible amount of regulatory scrutiny given Intel’s thick antitrust files in Europe, Korea and the the U.S. And there’s the China problem.
Intel has a good reputation as a company that has invested heavily in the People’s Republic with its under-performing Dalian fab and its $1.5 billion investment in Spreadtrum. But neither deal has much future.
Intel needs to find a raison d’etre for Dalian. For its part, Spreadtrum wants access to Intel’s 14nm process, but it wants to make ARM-based mobile products in it, not x86 ones.
Qualcomm is on China’s bad side as one of those Western companies charging it huge royalties. Management eased the IP standoff recently, but there are plenty of bad feelings on both sides.
Hewlett-Packard provides the answer to this dilemma with its recent move to split off much of its China operations into a joint venture. A merged Intel/Qualcomm could likewise carve out a portion of its business to turn into a win/win partnership with a China entity.
There will be plenty of other mergers in the chip sector.
Among the big ones, Globalfoundries or TSMC might someday gobble up UMC. But techno-politics suggest the Middle Eastern money in GF and the Taiwan money in TSMC will never merge.
Texas Instruments could continue its acquisitions in an analog, snapping up an Analog Devices, On Semi or even a Maxim or Linear. However, the medium-sized analog companies are well managed and these businesses with the highly fragmented and specialized processes don’t scale well.
Among the other top players, we could see more combinations in Japan among its several remaining big players — Toshiba, Renesas, Sony, Sharp, Fujitsu and Pansonic. A pan-European chip vendor made up of ST Microelectronics and Infineon seems less likely.
OK, that’s my take. Your move.