Once a leader in the semiconductor industry, Intel (INTC, Financial) has seen its technological advantage diminish over the past decade. This shift has allowed competitors like Taiwan Semiconductor Manufacturing (TSM, Financial), Advanced Micro Devices (AMD, Financial), and NVIDIA (NVDA, Financial) to dominate the AI-powered chip market. Amidst a significant downturn, with year-over-year revenue declines in ten of the last twelve quarters and a stock price drop of over 50% since early 2024, Intel is now attracting merger and acquisition interest. Broadcom (AVGO, Financial) is reportedly considering a bid for Intel's product business, while TSM is evaluating the acquisition of some or all of Intel's chip manufacturing plants.

This news has boosted Intel's shares, though AVGO and TSM have seen declines. For Intel, separating its chip design business from the Foundry segment, which has been struggling under former CEO Pat Gelsinger, could unlock shareholder value. Despite challenges, Intel remains a key player in the PC/laptop market, making it an attractive strategic fit for AVGO, which has a strong presence in wireless and networking markets.

• Intel announced plans last September to spin off the Foundry segment into an independent subsidiary. In Q4, the unit saw a 13% year-over-year revenue drop to $4.5 billion, with a $13 billion operating loss in FY24. AVGO must find a partner for Foundry before acquiring Intel's product business, a challenge given Foundry's financial issues.
• Shareholder approval for an Intel acquisition is uncertain due to the risks of such a large transaction. Unlike Intel, AVGO is benefiting from the AI boom, with a 158% year-over-year increase in AI networking revenue in Q4, while Intel's Data Center and AI segment revenue fell by 3%, and Client Computing Group revenue declined by 9%.
• Regulatory challenges could impede a deal, as merging two large chip companies might pose a competitive threat. However, the Trump Administration's aim to strengthen the U.S. semiconductor market and reduce dependence on China and Taiwan might favor the deal.
• TSM's interest in Intel's facilities faces hurdles. Intel's plans to build new plants in Arizona and Ohio make it unlikely that the Trump Administration would permit TSM to control these or existing facilities.

The main takeaway is that Intel's vision of being both a chip designer and manufacturer is fading, which could be beneficial for shareholders. While a deal with AVGO is not guaranteed, the likelihood of a major transaction is increasing.