Intel needs Qualcomm — but that’s not a two-way street, Bank of America says

After missing second-quarter earnings expectations and seeing its stock fall over 50% so far this year, Intel (INTC) is quiet attracting hobby price billions of dollars.

Chipmaker Qualcomm (QCOM) is reportedly in taking over the chip pioneer in a deal that will seemingly be price $90 billion, the Wall Road Journal reported last week. And alternative asset manager Apollo Global Management (APO) has also offered an fairness-appreciate funding that will seemingly be price as critical as $5 billion, according to Bloomberg.

By taking over Intel, Qualcomm may potentially scale, gain leadership within the market for mobile, PC, and server core processor models, or CPUs, and have access to Intel’s sprawling chip fabrication plants, analysts at Bank of America (BAC) Global Research said in a note. They added that combining Qualcomm’s chip income of $33 billion with Intel’s $52 billion income would make Qualcomm the largest semiconductor company within the sector.

Nonetheless, the analysts said regulatory and financial challenges from a potential deal would outweigh those advantages, and added they are skeptical of a proposed takeover, and mediate confusion over the deal may pause up benefitting Intel’s rivals, at the side of Advanced Micro Devices (AMD) (AMD), Nvidia (NVDA), and Arm.

Right here are three reasons Bank of America and other analysts say Qualcomm wouldn’t lend a hand critical from an Intel takeover.

Intel and Qualcomm point of interest on completely different chips

A deal between a chip fashion designer and a company with the factories to make those chips appears to be like good from above, Richard Windsor, founder of research firm Radio Free Cell, said in a note — but it doesn’t actually “fit so successfully.”

Whereas Qualcomm uses British chip firm Arm’s architecture for its PC chips, Intel’s x86 processors, which are veteran in a lot of laptop and server hardware, are designed in a completely different way. Bank of America analysts also noted the variation, saying Qualcomm’s “present established relationships” on the Arm architecture make “it tougher to carry product” to Intel’s principally x86-based fabs.

Meanwhile, Windsor said Intel’s x86 processors are “beneath assault on all fronts from Arm and accelerated computing,” and that Qualcomm has already spent two decades competing against Intel’s chips within the mobile and PC market.

“In consequence, it makes no sense to transform the owner of a fading titan when one is in a factual station to partially or entirely displace it from the market,” Windsor said.

And Qualcomm already has a relationship with other chipmakers such as TSMC (TSM) and Samsung, Windsor said, meaning it already is aware of “the appropriate way to develop its chips to be optimally manufactured on these processes.” Because of the this fact, having to revamp its chips to be manufactured by Intel, which has already slipped at the back of with decreasing edge chips, “sounds appreciate a perilous proposition to me,” he said.

It may be an costly takeover

If Qualcomm does battle by means of with an acquisition, it may arrive at a top rate to Intel’s fresh expected value of $87 billion, Bank of America analysts said, adding that Intel also has about $53 billion in debt. Meanwhile, Qualcomm has $13 billion in cash on its balance sheet, analysts said.

Intel is also planning to exhaust billions to toughen a rising fab network, at the side of a five-year, $100 billion expansion plan for plants in Arizona, Unique Mexico, Ohio, and Oregon. Whereas the chipmaker is asking ahead to to obtain almost $20 billion in yell federal funding and loans from the U.S. CHIPS and Science Act to toughen the hassle, it makes up a small fragment of how critical the expansion plan is anticipated to value. Meanwhile, the chipmaker not too lengthy ago saw its shares shut on a excessive after the U.S. Department of Protection and U.S. Department of Commerce announced that it is eligible for a separate $3 billion in CHIPS Act funding beneath the Win Enclave program.

Windsor also said in his note that “Qualcomm would almost certainly pay for Intel with shares” which may perchance lead to “dilution for present holders of Qualcomm’s stock” (which entails Windsor). And whereas Intel’s shares have fallen this year, Windsor said it’s quiet “not cheap” attributable to the chipmaker’s falling income.

The regulatory environment is too sophisticated

Bank of America analysts said the potential deal faces a “sophisticated regulatory environment, specifically in China,” the place medium sized deals have, within the past, “taken years to even contemplate.”

Because of the this fact, analysts said, the potential to dominate the CPU market would actually work against a takeover, because it may face regulatory challenges. For example, the analysts noted Qualcomm’s failed acquisition of Dutch semiconductor company NXP (NXPI) in 2018, after it did not obtain approval from China’s antitrust regulator.