Intel (NASDAQ: INTC) is too big to fail, but too large for most to rescue

Intel (NASDAQ: INTC)—once a dominant force in US tech and the key chipmaker of the internet age—has suddenly found itself in the unfamiliar position of a takeover target. Having fallen behind competitors like NVIDIA (NASDAQ: NVDA) whose chips are powering the latest AI revolution, the company is struggling to catch up and the vultures are circling.

“There has been no shortage of rumors and speculation about the company,” Intel CEO Pat Gelsinger said in a Sept. 16 letter to employees after announcing a drastic cost cutting plan, layoffs and canceled dividend payments a month earlier. The company’s shares plummeted 35% after a weak second quarter report, pushing its valuation below book value in a signal that investors believe the company is now worth less than its assets and will likely need some serious cash to turn things around.

Qualcomm (NASDAQ: QCOM), known for chips used in wireless communications, is reportedly interested in purchasing the beleaguered Intel, but there are serious doubts about its ability to do so as it only has a fraction of the cash on hand it would need for the transaction. Apollo Global Management (NYSE: APO), an expert at rescuing distressed companies, is also reported to be interested in buying a partial stake which could be a more realistic option given its deeper pockets. 

Intel shares have surged 19% over the past month given all the chatter about possible suitors, but they’re still down 50% year-to-date. Despite the excitement, the reality is that there are very few companies with the financial might needed to purchase the $100 billion company. While tech giants like Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) could all make interesting suitors and presumably come up with the funds needed to get a deal done, they’ve all faced recent antitrust scrutiny from federal regulators and might shy away from purchasing such a high profile firm.

Berkshire Hathaway (NYSE: BRK.B), which has nearly $277 billion dollars available to deploy, could make for an interesting possibility. Warren Buffett frequently complains about the lack of acquisition targets that could make a dent in his bottom line, but Intel—as it works to play AI catch up—could certainly be one of them. Still, any suitor ultimately agreeing to purchase Intel would be faced with the dual challenge of trying to restore declining market share and stemming losses from its manufacturing operations, and that’s not something typical of Buffett’s investment style. 

Intel’s CEO Gelsinger, for his part, plans to keep plugging away and has promised to turn the company around. It separated out its chip manufacturing business—known as a foundry—from its own design business, and the company announced earlier this month a deal to produce a custom AI chip for Amazon Web Services as part of a multi-year, multi-billion-dollar framework. 

“This is the most significant transformation of Intel in over four decades,” Gelsinger said. “Not since the memory to microprocessor transition have we attempted something so essential. We succeeded then—and we will meet this moment and build a stronger Intel for decades to come.”

Perhaps the best thing going for Intel at the moment is the US government. It’s set to get as much as $11.5 billion in direct funding under the CHIPS and Science Act signed into law by President Joe Biden two years ago in an effort to bring semiconductor manufacturing closer to home, and the company earlier this month announced a new agreement to manufacture specialty chips for the US government and said it was ready to help “fortify the domestic semiconductor supply chain and to ensure the United States maintains its leadership in advanced manufacturing, microelectronics systems, and process technology.”

The US government has essentially singled out Intel as a national security asset, and that’s backing that’s hard to ignore. With big new agreements with Amazon, meanwhile, it’s clear that the company isn’t going anywhere. Intel is too big to fail, but only the deepest pockets will be able to save it.