ARM's Strategic Interest in Intel's Chip Business

ARM seeks to expand by acquiring IP blocks from Intel, focusing on adjacent markets without competing with existing customers.

### ARM's Strategic Interests in Intel and Market Dynamics
* 💡 ARM is interested in acquiring certain instruction sets or adjacent technologies from Intel, particularly in areas like **FPGA**, despite being rebuffed in their initial approach.
* 🤔 The rationale for ARM's interest stems from their successful **ARM-based processors**, as seen with Qualcomm, who has **thrived in the same market**.
* 📈 ARM's valuation is currently about **50% higher than Intel's market cap**, indicating a **strong financial position** that could facilitate **potential acquisitions**.
* 🔍 However, ARM's interest appears to focus on a **smaller segment of Intel's business**, contrasting with Qualcomm's **broader ambitions** regarding Intel's assets.
* 📊 ARM's run rate stands at **$4 billion**, while their datacenter revenue exceeds **$100 billion**, emphasizing their need to **expand into new categories** without alienating key customers like **Apple**.
* 🛠 Intel's manufacturing plans face challenges due to **perceptions of competition with customers**, making it difficult to **attract external clients** to their foundry services.
* 💻 Despite hurdles, there is optimism for a recovery in Intel's PC business, driven by a **refresh cycle** and the enduring strength of the **x86 architecture**.
* 🤝 To enhance their foundry business margins, Intel must establish partnerships with hyperscalers, which is **critical for improving their overall business model**.

The rationale here for a company that designs chips is what money? Well, so when you think about, you know, aam, they provide the IP blocks. They don't design or manufacture their chips. And in this case, look, Intel has a lot of IP within the company. It's tied to the x86 architecture. Obviously, ARM has a different architecture. But when you think about, you know, Altera side or any other business that's adjacent, that's where, you know, ARM may be interested in acquiring some of that instruction set or adjacent lines, whether it's FPGA or something along those lines. That would be my guess and mandate. We reiterate that according to this Bloomberg source, ARM's approach to Intel was rebuffed. But it's the same logic with Qualcomm, right? They've had success on ARM-based processors. Why go to x86? I note that your colleagues had interesting research overnight as well that let's say Intel gets even deeper into distress and they start

looking at options. How's ARM going to finance such a thing? Well, I mean, look at ARM's valuation. It's trading almost 50% above Intel's market cap. And look, when you do this, some of the parts, obviously Intel has got a lot more businesses that they could divest. But in the case of ARM, their stock is currently at probably the best premium within the semi-space. So it could be stark. I would imagine, you know, it would be a buyout of some of the portion of Intel's business. So clearly we are talking about a much smaller pie within Intel that ARM is interested in. In the case of Qualcomm, I mean, they were interested, at least based on the rumors, in the bulk of Intel's business. So I think it's a different transaction if you are looking at ARM versus Qualcomm here. And all of this, as we say thus far, has just been people familiar, particularly

with the Qualcomm, as you called it, rumor, but we call reporting. I'm interested Mandeep more broadly about how AAM benefits in any scenario here or not as the case may be. What if Intel went with a Qualcomm, for example. Well, in the case of farm, I mean, they are at a $4 billion run rate. When you look at it video, you know, over $100 billion in datacenter revenue built on arm designed. So clearly has to find a way to expand into adjacent categories without really competing with their customers, which in this case are the likes of video and Apple. So that's where I think the IP blocks are probably the right way for them to expand into new categories. And there I don't think they are getting into design or chip manufacturing. I mean, that won't be very well received in the market. Mandeep. Intel. 70% of revenue product. About 30%.

Manufacturing away from approaches for takeover. There is a plan that Gelsinger outlined. What does Bloomberg Intelligence make of that plan? Well, not all pieces of the plan are viable, and that's fair. You know, doing foundry manufacturing for chips that are outside of Intel is so hard because they have that everyone has the perception that Intel will end up competing with their customers. That's why the likes of, you know, Nvidia or any server chip maker, it's very hard to convince them to use Intel's fabs. So that's where the foundry business is, where all the struggles are. I do think the PC business will come back because x86 still has a moat and then there is a PC refresh cycle. That's the one part of the business that will recover nicely. So I'm betting on the PC side. You just have to figure out how to catch up on the server side and obviously on the foundry side, they really need to partner with Hyperscalers to improve the

Arm Rebuffed by Intel On Buying Unit

Welcome to the Bloomberg Technology YouTube channel. Subscribe for original series and mini-docs on game-changing technologies, profiles on innovators, live conversations with experts, and breaking technology news & analysis from Bloomberg TV.

Bloomberg Technology

ARM provides IP blocks and is not involved in chip design or manufacturing.

The company's interest in acquiring Intel's instruction set or adjacent lines is driven by its different architecture.

ARM's valuation is currently 50% above Intel's market cap, making it a potential player in buying a portion of Intel's business.

AAM is looking to expand into new categories without competing with customers like Nvidia and Apple, potentially through IP blocks.

Intel's plan to diversify its revenue and offer foundry manufacturing has faced challenges due to the perception of competing with customers.

While the PC business is expected to recover, Intel needs to catch up on the server side and improve its foundry business by partnering with Hyperscalers.

The margin profile of the business is determined by its revenue, costs, and expenses.

A higher margin indicates better profitability and efficiency.

Key factors influencing the margin profile include pricing strategy, operational costs, and market demand.