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Once the preeminent force in the global semiconductor industry, Intel's (INTC) technological edge has steadily faded over the past decade, opening the door for competitors like Taiwan Semiconductor Manufacturing (TSM), Advanced Micro Devices (AMD), and NVIDIA (NVDA) to fly by the company and to lead the AI-powered chip boom. Mired in one of the worst slumps in its history, as illustrated by yr/yr revenue declines in ten of its past twelve quarters and a stock price that has plunged by over 50% since the beginning of 2024, INTC is now drawing M&A interest. Over the weekend, the Wall Street Journal reported that Broadcom (AVGO) is considering making a bid for INTC's product business, while TSM is evaluating the possibility of acquiring some or all of INTC's chip manufacturing plants.

The story has sent shares of INTC sharply higher, while AVGO and TSM are sliding lower. For INTC, which struggled to kickstart its recently formed Foundry segment under former CEO Pat Gelsinger, untethering its chip design business from Foundry and the substantial losses that it continues to accumulate would likely unlock plenty of shareholder value. Despite its troubles, INTC is still a dominant player in the PC/laptop market, making the company a compelling strategic fit for AVGO and its stronger presence in the wireless and networking markets.

• Prior to this development, INTC had announced last September that it was planning to spin-off the Foundry segment into an independent subsidiary with separate financials. In Q4, the unit experienced a 13% yr/yr drop in revenue to $4.5 bln, and in FY24, it racked up an operating loss of $13.0 bln. In order for AVGO to consider acquiring INTC's product business, AVGO will first need to find a partner for Foundry, which may be easier said than done given Foundry's financial issues.
• Furthermore, attaining shareholder approval for an acquisition of INTC may not be a slam dunk considering the vast risks involved with such a huge transaction. Unlike INTC, AVGO is capitalizing on the AI boom. In Q4, the company's AI networking revenue surged by 158% yr/yr, driven by a doubling of its AI XPU shipments to three hyperscale customers. Meanwhile, revenue in INTC's Data Center and AI segment fell by 3%, while revenue in the Client Computing Group slipped by 9%.
• Regulatory hurdles could also stand in the way of a deal getting done since the combination of two of the largest chip companies could pose a competitive threat. However, the fact that the Trump Administration wants to strengthen the country's positioning in the global semiconductor market, lessening our dependence on China and Taiwan, could work in this deal's favor. 
• The same can't be said for TSM's reported interest in buying some of INTC's facilities. Under Mr. Gelsinger, INTC announced plans to construct new plants in Arizona and Ohio and it's highly unlikely that the Trump Administration would allow TSM to take a controlling interest in those facilities -- or any preexisting facilities.

The main takeaway is that the prior vision of INTC transforming into both a chip designer and manufacturer is fading and that's a positive from the perspective of its shareholders. A transaction with AVGO is far from a lock, but the odds of a major deal getting done are steadily rising.