Confused about the potential Qualcomm-Intel deal? Here’s why it matters even if it doesn’t happen.

What’s on deck:

But first, do opposites attract?

If this was forwarded to you, sign up here.

The big story

Chips on the table

Qualcomm’s potential bid for Intel would feature plenty of zeros, but one massive question is the real hold-up: How is this going to work?

With both companies’ sizable market caps — Qualcomm’s is nearly $185 billion; Intel’s is more than $96 billion — talks of a deal were bound to turn heads. But industry experts have gone from turning their heads to scratching them trying to make sense of the potential tie-up.

Bernstein’s team of chip analysts didn’t mince words, writing it “would prefer that Qualcomm not pursue this as it seems very risky to us given uncertain returns.”

So what’s the issue? Let’s break it all down.

Why is everyone doubting this Qualcomm-Intel deal? The big hangup is that Intel designs and manufactures chips. No one is quite sure how the latter half of the business fits into Qualcomm, which only designs chips.

Wait, isn’t it a good thing Intel can do both? It used to be, but not anymore. Nowadays, chip companies typically focus on one or the other. Some companies design chips (Nvidia). Only a few manufacture them (TSMC mostly). If anything, doing both has actually hurt, not helped, Intel in recent years. Along with some other bad strategic decisions.

I’m still confused. TSMC’s pure manufacturing focus has helped it get very good at what is an incredibly complex process. It works with a bunch of different players, while Intel only really manufactures its own chip designs. Getting all that varied experience has proved particularly beneficial for TSMC in the age of cutting-edge mobile and AI chips. It’s so good now that even Intel has TSMC make a few of its designs — the ultimate victory.

So Intel is mid at manufacturing chips? Sighs Sure. It used to be the best, now it’s probably third.

If that’s the case, why can’t Qualcomm just ditch the factories as part of the deal? That is indeed the likely plan. The US needs Intel to keep (and get better at) manufacturing chips. Having the world’s most dominant chip manufacturer, TSMC, be based in Taiwan isn’t great. If China decides to invade the island, our chip supply is in major trouble.

Why is Qualcomm even reportedly considering buying Intel? Intel is still very good at designing chips for PCs and servers, the computers that go in data centers. These businesses would complement Qualcomm’s existing offerings well. Qualcomm would probably then sell Intel’s manufacturing operations to another buyer. The problem with that is that this manufacturing business would have almost no customers, and would fall even further behind TSMC.

Does Intel have any other options? Intel’s manufacturing capabilities might be a hangup to this deal, but they’re why so many people want to see the company survive and thrive. After news of the Qualcomm talks broke, a report followed about PE giant Apollo’s interest in investing up to $5 billion in Intel.

So how does this all end? Experts seem incredibly skeptical about a Qualcomm deal going through. But this entire episode highlights important questions about the US’ chip-manufacturing abilities, or lack thereof. As for Intel, the company already committed to making big changes, so with or without Qualcomm, expect some upheaval.

News brief

Top headlines

3 things in markets

1. Jamie Dimon vs. private equity. The JPMorgan CEO said he’s not a fan of junior bankers who accept future-dated PE jobs, sometimes before even starting their jobs at the bank. He called the process “unethical,” and said he “may eliminate it regardless of what the private-equity guys say.”
2. The biggest days for stocks between now and the election. Bank of America identified the three most important days for the stock market in the lead up to the presidential election. Some are tied to the release of economic data while another is when some of Big Tech is expected to report earnings.
3. Wall Street is going nuclear, literally. More than a dozen banks, including Goldman Sachs and Bank of America, are backing an initiative to triple the world’s nuclear energy capacity by 2050. The industry joins Big Tech, which views nuclear power as a solution to the energy demand created from advanced AI.

3 things in tech

1. Amazon salespeople have a new reason to hawk AI products. An internal memo shows Amazon Web Services recently implemented an incentive program for its flagship AI products, Q and Bedrock. Some of the bonuses max out at $20,000.
2. The best female early-stage investors, according to the AI “Moneyball for VC.” A San Francisco firm developed a proprietary model to predict which startups are most likely to become unicorns. According to its methodology, these 19 women have an exceptional knack for picking winners.
3. We asked ChatGPT to do some introspection. Legendary investor Vinod Khosla published more than 10,300 words on the future of AI. We asked ChatGPT what it “thinks” about Khosla’s points. While it agreed with some of his predictions, it called others “overly optimistic.”

3 things in business

1. It’s time to rethink how we do promotions. As it turns out, companies have been picking managers in the worst possible way. In fact, a new study found that in some cases, the practices businesses use to promote managers are so bad that they’d actually be better off picking names out of a hat.
2. Bad news for RTO rebels. Employees angry about return-to-office mandates have essentially no legal path to fight them, experts told BI.
3. Cue the “Succession” theme song. The battle for Rupert Murdoch’s inheritance is on, playing out in a Nevada courtroom. On one side is Lachlan Murdoch, the sole chosen heir of the elder Murdoch. On the other are three of Lachlan’s siblings who were originally slated to share power.

What’s happening today

• Caroline Ellison is sentenced for her role in the FTX fraud scheme.
• President Biden speaks at Bloomberg Global Business Forum.
• FAA Administrator testifies in Congress in hearing on Boeing’s quality-control plan, following a series of mishaps earlier this year.
• OPEC launches annual World Oil Outlook.

The Insider Today team: Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Jack Sommers, deputy editor, in London. Milan Sehmbi, fellow, in London. Amanda Yen, fellow, in New York.