Intel's "Sale" Leaves Valuable "Legacy," Insiders Say Real Value Exceeds Market

Intel has a history of over 60 years, and under the impact of the tidal wave of new technologies, this American veteran chip giant is making its last struggle.

After missing several transformation opportunities in history, Intel's fate may be in the hands of others.

The latest news says that Qualcomm is negotiating to acquire Intel's business.

This rumor has not been confirmed by both parties, but it has sparked widespread discussion in the industry.

Intel's current market value is less than $100 billion.

Winning by quantity, it is still the "main force" of data centers.

Gartner analyst Sheng Linghai said, "We cannot only look at Intel's stock price, which reflects profits, not the importance of the product.

Intel is too important, and its actual value is far higher than the value reflected by its market value."

He added that Intel's data center and PC business is still a core part of the Internet.

"Although overtaken by giants such as Nvidia, Intel is still the main force in data centers.

Without data centers, there is no Internet," Sheng Linghai said.

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He also said that when it comes to major mergers and acquisitions, antitrust review is an inevitable "barrier".

In 2017, Broadcom's failed bid for Qualcomm was stopped by the Trump administration on suspicion of monopoly; even if the United States approved it, it would still need to be approved by other countries and regions, including China.

The failure of Qualcomm's acquisition of NXP that year is a case in point.

Qualcomm is the world's largest mobile chip manufacturer, while Intel is the world's largest PC and data center server chip manufacturer.

In the view of industry insiders, if Qualcomm can "buy low" Intel, it is expected to promote Qualcomm's valuation.

It is worth noting that this acquisition rumor coincides with the Federal Reserve's recent announcement of a rate cut.

Sheng Linghai believes that the greater driving force behind the acquisition of Intel is the pursuit of profit by capital.

He also said that the U.S. semiconductor industry is in the process of industrial structure adjustment.

"Sometimes there is no need for many reasons to do business, when the market opportunity comes, capital will think it is profitable," he said.

Another senior person in the chip industry also said to the First Financial reporter, "Intel's valuation is at a low point, which is like a 50% discount on the core area of real estate, and it may not be there if you miss it."

He analyzed that Intel's assets still have great value.

"Intel has good things, such as FPGA, Mobileye, GPU, etc.

Keep what you want and sell what you don't want.

It is still possible to make a lot of money through capital operations," the above person said.

He added that Intel is still enjoying the dividends of "Apple", occupying the PC market on one hand, and standing in the mobile phone market on the other hand.

The future 6G and 7G will still depend on it.

"Broadcom's stock price has risen sharply in recent years, which must make Qualcomm envious.

If it can acquire Intel at a low price, it can also promote Qualcomm's future market growth expectations," he said.

However, he predicted that Qualcomm may not acquire Intel's loss-making foundry business, so one of Intel's options is to sell its foundry business to a more powerful competitor, such as TSMC.

In recent years, Intel has been continuously streamlining its business lines.

The main business departments currently include the Client Computing Group (CCG), which covers desktop and notebook business, as well as the Data Center and Artificial Intelligence Group (DCAI), Network and Edge Group (NEX), and Intel Foundry.

From the source of income, the CCG and DCAI departments are still the main business of Intel, and the income contribution accounted for more than 80% in the fourth quarter of last year.

However, in the new round of AI wave, not only did Intel's two major main businesses not benefit, but their income also decreased.

Taking the data center business as an example, in the second quarter of this year, Intel's DCAI revenue was $3.05 billion, a year-on-year decrease of 3.5%.

The market interpreted this as a signal that Intel's growth is hopeless.

At present, Intel still occupies the dominant position in the data center CPU, although it faces competition from AMD.

In the second quarter of this year, Intel controlled about 76% of the global data center CPU shipments, and AMD's share was about 21%.

In the client PC market, Intel accounted for about 79% of the market share, and AMD's share was about 21%.

However, Intel has always been "winning by quantity" in recent years.

Although the shipment volume has reached more than three times that of AMD, the profit is far less than AMD.

The two companies' revenue in the data center CPU business is the same, about $3 billion.

Intel's profit decline has also become the fundamental factor for the company's stock to be sold.

According to the company's latest quarterly financial report, in the second quarter of 2024, Intel's revenue was about $12.8 billion, and the net loss increased by more than 200% year-on-year.

Intel CEO Pat Gelsinger frankly said that the company did not fully benefit from the AI wave, the cost is too high, and the profit is too low.

In August this year, Intel announced a global layoff of 15%, and it is expected that tens of thousands of people will leave their jobs, and the plan is to cut costs by $10 billion.

Gelsinger recently revealed that so far, the company's layoff plan has been completed by about half.

"Intel is a 70-year-old man, eating the dividends of the PC era, Qualcomm and AMD are 40-year-old men, eating the dividends of the mobile phone era, and Nvidia is a young man of 18 years old, showing the possibilities of the AI era."

An industry insider commented like this.

Intel's decline began to emerge in 2021.

In that year, the company's annual revenue was close to $80 billion, and then it fell off a cliff at a speed of $10 billion per year.

In 2023, Intel's annual revenue fell below $60 billion, and the revenue was reduced by one-third.

Who will take over the foundry business that has been independent?

In the past year, Intel has also been continuously seeking business adjustments.

Against the background of the development of the two core businesses of PCs and data centers being blocked, Intel began to vigorously develop the foundry business.

Although this has benefited from the subsidy benefits of the U.S. "Chips and Science Act", this business has become a "bottomless pit" for Intel.

Intel said earlier this week that it is creating an independent entity for its foundry business, and this structure can enable it to raise external funds.

"The foundry business is a bottomless pit, and it can only continue to invest money, and it may not be able to do it."

Sheng Linghai said to the First Financial reporter.

So far, the foundry business is the main factor that drags down Intel's profits.

Market analysis data estimates that Intel spent about $25 billion on the foundry business every year in the past two years.

Although in the first quarter of this year, Intel's foundry department generated $4.4 billion in revenue, these revenues mainly came from the inside.

Intel has adopted the so-called "internal foundry" model since the beginning of this year, that is, its product departments and external customers will purchase manufacturing and packaging services from the independent department of Intel Foundry inside.

"Most of the revenue of Intel's foundry department still comes from the foundry of Intel's own chips."

Sheng Linghai said to the First Financial reporter, "This part of the revenue can be understood as 'fake revenue'."

According to the data disclosed by Intel, in 2023, Intel's foundry department lost about $7 billion, and the loss in the first quarter of this year reached $2.5 billion.

There are already law firms in the United States that say that the growth and profit of Intel's foundry services have been falsely stated, and they call on Intel investors to join the collective lawsuit against the company.

However, at present, Intel is still insisting on investing in chip manufacturing projects and has obtained a large amount of subsidies from the U.S. government.

The U.S. government is increasing its investment in semiconductor production.

Earlier this week, the Biden administration provided Intel with up to $3 billion in funds according to the "Chips and Science Act".

According to the act, Intel obtained a government grant of $8.5 billion and a loan of $11 billion in March this year.

This is also the largest subsidy given to a single company by the "Chips and Science Act".

On September 16, Intel also announced a cooperation project with Amazon's cloud computing department AWS, involving tens of billions of dollars in orders.

According to the cooperation agreement, in the next few years, Intel will produce AI chips based on the Intel 18A (1.8 nanometer) foundry process node for AWS, which is the most advanced chip process node that Intel has ever had.

The company hopes to challenge TSMC's 2 nanometer process technology with this.

Intel said that it will carry out its most advanced manufacturing in the factory currently under construction in Ohio, including AI chips for AWS.

"All eyes will be on us," Gelsinger said, "We need to fight for every inch of land and execute better than ever before.

Because this is the only way to silence the critics, and we know we have the ability to achieve this goal."

However, the industry widely believes that Intel's IDM model is a "costly strategic mistake".

The so-called IDM model is that the enterprise not only designs its own chips but also produces its own chips.

The U.S. think tank Cato Institute analyzed that Intel has always refused to accept the new division of labor in the semiconductor industry, thus reaching the current loss.

According to Intel's plan, it will continue to invest more than $20 billion in wafer factories next year.

However, poor financial performance and financing environment may directly affect Intel's subsequent investment ability, and waiting for a take-over may be one of the options the company faces.

"We still don't know if Intel can really manufacture cutting-edge chips in a commercially feasible way, and we don't know if the expenditure of the 'Chips and Science Act' will brew a vibrant and cutting-edge U.S. semiconductor industry."

The Cato Institute analyzed.

The cost of building a wafer factory is extremely high.

Some institutions estimate that the cost of building a 2nm factory with a monthly output of 50,000 wafers is about $28 billion, and the cost of a 3nm factory with the same capacity is about $20 billion.Sheng Linghai said: "It's hard to do advanced process IDM, and it's not a problem that can be solved just by investing more money."