Qualcomm buying Intel makes no sense because of AMD’s ace in the hole

The hits just keep on coming for Intel. AMD’s Epyc chips are gobbling up market share in data centers while Intel’s desktop chips are frying themselves after years of being stuck on a stalled architecture. The company is laying off 15,000 people and spinning off its foundry business. And now that Intel is on the ropes, the Wall Street Journal reports that Qualcomm approached the company about a takeover, licking its lips over the possibility of swallowing Chipzilla whole.

I’ll eat my hat if it happens.

Not just because Qualcomm buying Intel doesn’t make sense given the companies’ stock prices, cash reserves, and competitive positioning, as analyst Ming-Chi Kuo spells out. Not just because governments would likely shut the prospect down, with processors and foundries becoming a key battleground in international politics. Not just because Intel’s current valuation is less than the sum of its parts.

The reason why I think these rumors won’t bear fruit is much simpler: The industry almost let AMD die a decade ago because a change of ownership would terminate the extensive x86 cross-licensing pact that exists between Intel and AMD.

If Qualcomm (or anyone else for that matter) bought Intel, they’d need to renegotiate that deal — and AMD isn’t likely to offer charitable terms now that it’s no longer on death’s door.

Dangerous ground for would-be buyers

These days, AMD is riding high on the AI wave and buying up companies left and right. But the story was very different a decade ago.

Back then, the company was struggling after its pricey acquisition of ATI’s Radeon graphics and the utterly disastrous Bulldozer CPU launch. AMD was saddled with debt and wound up spinning off its fabrication arm as GlobalFoundries. For years afterward, AMD’s very survival was a question mark, up until AMD’s new Zen architecture — dubbed “AMD’s last chance” by The Motley Fool — kicked off the company’s comeback story.

Yet even though AMD is Intel’s only true rival in the x86 chip manufacturing space, no white knights or corporate raiders swooped in to bail AMD out for pennies on the dollar. Why not? Nobody has really said.

But consider this: When AMD spun off GlobalFoundries, Intel threatened to sue AMD for breaching its x86 cross-licensing agreement. They wound up burying the hatchet with another patent agreement, but the threat of a potential thermonuclear patent war with Intel no doubt gave would-be AMD buyers pause.

The Register reports that cross-licensing agreements remain in place between the two companies:

“While a number of the aforementioned patents expired in 2021, it’s our understanding that agreement is still in force and Qualcomm would be subject to change of control rules. In other words, Qualcomm wouldn’t be able to produce Intel-designed x86-64 chips unless AMD gave the green light. It’s also likely one of the reasons why no one bought AMD when it was on the ropes; whoever took over it would have to deal with Intel.”

Nobody wants to step on that landmine, even with Intel being a relative bargain right now. When you add in all those potential regulatory hurdles and the fact that buying Intel would put immense financial pressure on Qualcomm, the whole thing doesn’t make sense.

Ultimately, Qualcomm buying Intel smells like a story intended to move financial markets more than an actual possibility.