MW Should Broadcom really buy parts of Intel? It could be 'extremely lucrative.'

By Therese Poletti

Broadcom would only be interested in Intel's core PC- and server-chip units, Piper Sandler speculates

As Wall Street continues to speculate about a potential split of chip giant Intel Corp., Piper Sandler believes that a Broadcom Inc. acquisition of the company's core x86 business "would be extremely lucrative."

Last weekend, the Wall Street Journal added another dimension to the slew of reports on Intel's $(INTC)$ future, reporting that Broadcom $(AVGO)$ has been closely examining Intel's chip-design and -marketing business as part of a possible deal that would split Intel into two. Taiwan Semiconductor Manufacturing Co. (TW:2330) has studied controlling some or all of Intel's chip plants, possibly as part of an investor consortium, the Journal also reported.

"Assuming that [Broadcom] management pays a premium to the current market cap and is able to turn this business around just as it has turned around almost every other business that it has previously acquired, we think that the numbers become extremely compelling," Piper Sandler analyst Harsh Kumar wrote in a note to clients.

Kumar said he arrived at a potential sale price of $101 billion, with a ratio of about 3.47x on the basis of debt to earnings before interest, taxes, depreciation and amortization. He described those numbers as "very palatable in the world of semis." Intel could add about $1.50 to $1.60 in earnings per share to Broadcom, he added.

The deal could be fully financed by debt, and Broadcom could scale down Intel's client business, which makes personal-computer chips, "by pruning" businesses, Kumar wrote. "Similar to previous deals, we believe [Broadcom] would strategically exit certain segments of the client market." That could mean the segment would earn 25% less revenue.

It was not clear if Kumar's projected price would include the cost of renegotiating a cross-licensing pact with Advanced Micro Devices Inc. $(AMD)$. Since 2009, Intel and AMD have had in place a cross-licensing agreement for x86 technologies that would terminate upon a change in control of either company. Kumar did not immediately respond to a request for clarification.

He also believes that Broadcom would shut down Intel's artificial-intelligence chip business, which currently develops the Gaudi chip. Intel has already canceled its next-generation AI chip, which was code-named Falcon Shores.

On Feb. 11, Intel's stock began a major run after Vice President J.D. Vance made positive comments about the Trump administration's plans to boost the semiconductor industry in the United States. Around that time, reports also emerged that the administration was trying to broker a deal for Intel's manufacturing business, including one that would put TSMC in charge of the operations.

Also read: Intel's stock-market run is unlike anything it's seen in more than two decades

Kumar said he is convinced that Broadcom is not interested at all in Intel's manufacturing operations, which have been separated from the chip-design business where its core PC and server chips reside. He also said that he believes Broadcom would probably sell off Intel's networking and edge business, since that is not in a leading position and does not fit Broadcom's strategy.

Over the past 10 years, Broadcom has grown into a massive tech conglomerate through a series of acquisitions, often of struggling tech companies that were once leaders in their fields. In fiscal 2024, Broadcom's total revenue was $51.6 billion, up from $6.8 billion in fiscal 2015. The deals started that year when Avago Technologies, which had its roots as a semiconductor unit of Hewlett Packard Co., bought Broadcom Communications, a Southern California-based chip designer, for $37 billion.

Some of Broadcom's biggest deals have included software maker VMware, CA Technologies (formerly Computer Associates) and Symantec.

Kumar reiterated an overweight rating on Broadcom. In morning trading, Broadcom's stock was off fractionally, while Intel's was down nearly 2%.

-Therese Poletti

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February 21, 2025 11:20 ET (16:20 GMT)

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