Despite Challenges, Intel’s Fair Value Estimate Remains Stable

We intend to maintain our $21 (C$28.40) fair value estimate for no-moat Intel INTC and $180 (C$243.41) for narrow-moat Qualcomm QCOM following The Wall Street Journal’s report on Sept. 20 that Qualcomm “made a takeover approach to rival Intel in recent days.”

No deal price was discussed in the report, and we agree with the Journals assessment that there would be significant antitrust scrutiny around such a deal, so we’re hesitant to believe that a bid to take over Intel that would appeal to their shareholders is imminent. Intel’s shares rose 3% on Sept. 20 while Qualcomm fell 3%, perhaps signaling to the latter firm that Qualcomm shareholders might not be thrilled with such a takeover.

We’re not necessarily surprised that talks are being made, as Intel is in the middle of a significant transformation that will likely include the shedding of additional assets and the internal split of its chip design and foundry businesses. However, a takeover by Qualcomm would not resolve Intel’s fundamental problem of being at a competitive disadvantage in chip manufacturing to Taiwan Semiconductor Manufacturing Corporation 2330. We’re not confident that ownership by Qualcomm would stop the bleeding in terms of Intel’s share losses to AMD AMD in server or PC central processing units either.

If Qualcomm were to pay a paltry premium, then Qualcomm’s steadier chip and licensing businesses might bring additional cash into Intel to allow it to achieve its manufacturing aspirations, hopefully to be capped off with Intel 18A in 2025. However, Qualcomm’s “value-add” in this deal might merely come from strategically looking at Intel’s business with fresh eyes, perhaps leading to faster spinoffs of Altera and/or Mobileye, or more aggressively shifting Intel’s chip designs to TSMC. The latter move would again invite significant scrutiny, however, given the US government’s CHIPS Act awards to Intel and, more generally, substantial geopolitical interest in the US and Europe of having leading-edge chip manufacturing on its shores.

Key Morningstar Metrics for Intel

• Fair Value Estimate: $21
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None 
• Morningstar Uncertainty Rating: Very High

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