With rumors of Qualcomm’s split with its processor making unit afloat, an interesting piece of analysis has surfaced via Wall Street, pointing towards Intel Corp as the best possible beau for the leading American chip maker.
After Qualcomm’s Wednesday statement, in which the company mulled over the possibility of separating the chip making unit — valued at $30-$40 billion — from its other businesses, the market has been buzzing with discussion over the prospective buyers, if and when such a separation occurs.
The two main candidates that have emerged for the same include Intel Corp. and a Consortium backed by the Chinese government and Samsung Electronics Co Ltd, with the majority of analysts — including the Wall Street Journal — egging for an acquisition by the former.
While Cowen and Co analyst Timothy Arcuri termed a possible Qualcomm-Intel merger as “The chip deal to end all chip deals”, according to Ascendiant Capital Markets analyst Cody Acree, who spoke to Reuters,
This would catapult Intel into the leadership position and give it diversity away from PCs that it very much needs.
A deal with Intel would definitely make sense considering the fact that not only will Intel owned foundries cut down the manufacturing cost of Qualcomm chips, but the contract would allow Intel to increase its presence in the very important Chinese market, a place where it’s been facing stiff competition from domestic companies.
However, does a split make any sense at all?
Granted, the past year has seen a decline in the fortunes of the company famous for its Snapdragon units, with Qualcomm diverting funds from its licensing business to keep things going. Cheaper chipsets — courtesy MediaTek and others — have also been eating into Qualcomm’s business of late, while the decision of many major OEMs — such as Samsung with its Exynos — to use their own, home-grown processors has not been particularly good for business either.
But is that reason enough to split the company? And would a split help at all? Well, according to Arcuri and several other prominent analysis firms, it won’t.
We worry that the loss of its golden goose would seriously harm (the chip unit’s) ability to dramatically out-spend competitors on research and development.
Said analysts from Arcuri, raising serious questions about the chip making unit’s ability to sustain itself without backing from Qualcomm while according to Drexel Hamilton analyst Richard Whittington
I can’t see how they can possibly segregate the two. Whatever short-term gain is derived, would be more than made up with permanent loss of market share in … two to three years,
Suggesting that a better option could be to partner up with Intel or other Chinese/Korean companies.
Although both Intel and Qualcomm refused to comment on the topic, prompting us to think that something may indeed be going on, it’s hard to say anything for certain at this point of time.
While experts certainly go against a split, the one thing everyone seems to be agreeing on is that in case a separation does happen, Intel would be the best bet for Qualcomm’s chip making units.