IBM to buy Intel - Is it just me?

Why IBM Should Consider Buying Intel: A Strategic Acquisition for the Future of American Tech

The idea of IBM acquiring Intel is indeed a contrarian view, and people are questioning my sanity for even expressing this opinion out loud, but I can’t get the idea out of my head though, so perhaps putting the whole thing down on paper (well virtually) will help.?

First off I know that IBM exited the semiconductor fabrication business when it sold its assets to GlobalFoundries in 2014, I was at IBM when this happened and remember the all-hands meeting in Poughkeepsie to announce the news. At the time, IBM's decision to divest from chip manufacturing was seen as a strategic move to focus on software, services, and high-margin businesses. Given this history, suggesting that IBM should re-enter the semiconductor space by acquiring Intel may seem counterintuitive to many.

However, being a technology analyst allows one to explore and propose unconventional ideas that challenge the status quo. It’s this freedom to think beyond conventional wisdom that enables fresh perspectives, even when they go against prevailing industry narratives. Such opinions, while debatable, can spark important discussions about the future direction of major technology companies and their roles in the broader industry landscape.

As Intel's stock continues to underperform and its market cap shrinks, now might be the perfect time for an acquisition that could reshape the landscape of American technology. IBM, a company that has quietly maintained its position as a leader in hardware innovation while expanding its software and consulting businesses, could be the ideal suitor. This article outlines why IBM should consider buying Intel, focusing on five key areas that highlight the strategic value of such a move.

1. Intel is Cheap: A Golden Opportunity for IBM

Intel, once the undisputed leader in semiconductor manufacturing, has seen its stock price take a significant hit over the past few years. As of 2024, Intel’s stock is not only lagging behind the performance of the S&P 500, but it has also lost significant market value compared to its peers. The company’s market cap has fallen to levels that make it an attractive acquisition target for a company like IBM, which has the financial resources and strategic vision to capitalize on Intel’s current struggles.

Intel's troubles are well-documented. Delays in transitioning to advanced manufacturing processes, stiff competition from AMD and NVIDIA, and a series of missed earnings targets have eroded investor confidence. The stock’s poor performance is a reflection of these challenges, and with its market cap at a historic low, Intel is far from the industry giant it once was. All the talk is about splitting the company up. I think an acquisition is a better option

For IBM, this presents a golden opportunity. Acquiring Intel at a depressed valuation would allow IBM to bring Intel's valuable assets and capabilities under its wing at a bargain price. This move would not only diversify IBM's hardware portfolio but also position the company to take advantage of future growth in the semiconductor market as global demand for chips continues to surge.

2. A Period of Rebuilding Away from Wall Street's Glare

Intel's current woes are exacerbated by the relentless pressure to meet quarterly earnings expectations. This short-term focus has hindered the company's ability to make the long-term investments needed to regain its leadership position in the semiconductor industry. Under IBM’s ownership, Intel could benefit from a period of strategic rebuilding away from the scrutiny of Wall Street.

IBM, with its long-term focus and disciplined management approach, could provide Intel with the stability and resources it needs to refocus on its core strengths. By taking Intel out of the public markets, IBM could enable the company to prioritize R&D, streamline operations, and reestablish its leadership in semiconductor manufacturing without the constant pressure to deliver immediate returns.

This period of rebuilding would be critical for Intel to regain its footing. The semiconductor industry is highly capital-intensive and requires sustained investment in both technology and talent. IBM’s deep pockets and strategic patience would allow Intel to make the necessary investments to innovate and compete at the highest level, without the distractions of quarterly earnings calls and shareholder activism.

3. IBM's Expertise in R&D and Patents: A Perfect Match for Intel

IBM has a long history of leading in research and development (R&D), particularly in the area of hardware. The company consistently ranks among the top patent holders worldwide, often outpacing its competitors by a wide margin. This expertise in R&D and intellectual property (IP) would be a significant asset for Intel, which has struggled to maintain its technological edge in recent years.

IBM’s commitment to innovation is evident in its track record. The company has been the top U.S. patent recipient for 29 consecutive years, with a significant portion of these patents in hardware and semiconductor technologies. This R&D prowess would provide Intel with a renewed focus on innovation, helping the company develop the next generation of semiconductor technologies.

Furthermore, IBM’s understanding of the value of patents and IP would allow Intel to better monetize its own extensive patent portfolio. By integrating Intel’s patents into IBM’s broader IP strategy, the combined company could create new revenue streams and strengthen its competitive position in the global technology market.

4. IBM: A Hardware Innovator at Its Core

While IBM has diversified into software and consulting, it remains a hardware company at its core. The company continues to invest heavily in hardware innovation, with recent developments such as the Telum II processor and advancements in the Power architecture serving as prime examples. IBM’s deep expertise in hardware design and manufacturing would complement Intel’s capabilities, creating a powerful combination that could drive innovation across a range of industries.

IBM’s continued focus on hardware is not just about maintaining its legacy; it’s about pushing the boundaries of what’s possible in computing. The Telum II processor, designed for high-performance computing and AI workloads, is a testament to IBM’s ability to innovate at scale. Similarly, the Power architecture remains a critical part of IBM’s hardware strategy, providing the foundation for many of the company’s enterprise solutions.

By acquiring Intel, IBM could leverage its hardware expertise to help Intel overcome its current challenges and accelerate the development of cutting-edge semiconductor technologies. The synergies between the two companies would be significant, enabling them to deliver more powerful and efficient solutions to customers across a variety of sectors, from cloud computing to artificial intelligence.

5. The Geopolitical Imperative: IBM's Global Footprint and American Legacy

In today’s geopolitical environment, where tensions between the U.S. and China are at an all-time high, the importance of maintaining a strong and secure domestic semiconductor industry cannot be overstated. Arguably the most American of all technology companies, IBM is uniquely positioned to steward Intel’s future.

IBM has a long history of aligning with U.S. government priorities and has operated as a trusted partner across various strategic initiatives. With a presence in 175 countries, IBM has the global footprint needed to navigate the complexities of the modern geopolitical landscape. This makes IBM the ideal home for Intel, especially as the U.S. government increasingly emphasizes semiconductor independence and security.

Moreover, IBM’s deep ties to the U.S. government would ensure that Intel remains a key player in the national security infrastructure, particularly as the semiconductor industry becomes more critical to defense and technology supply chains. IBM’s acquisition of Intel would not only strengthen America’s position in the global technology race but also ensure that the next generation of semiconductor innovation remains firmly rooted in the United States.

Also only one company in my opinion would be allowed to buy Intel and that is IBM… this has to ba factor in the equation of where Intel goes next.

Conclusion: A Strategic Move for IBM and Intel

The case for IBM to acquire Intel is compelling, to me at least. Intel’s current market position, while challenging, represents a unique opportunity for IBM to acquire a valuable asset at a discounted price. Under IBM’s ownership, Intel could benefit from the stability and long-term focus needed to regain its leadership in the semiconductor industry. Moreover, IBM’s expertise in R&D and hardware innovation, combined with its strong global footprint and American legacy, make it the perfect steward for Intel’s future.

In a world where technology and geopolitics are increasingly intertwined, IBM’s acquisition of Intel could be a strategic move that not only revitalizes Intel but also strengthens America’s position in the global technology landscape. This is a bold idea, some would say crazy, but one that could pay off handsomely for both companies and the broader U.S. technology industry.

Disclaimer: The views expressed in this article are my own and do not necessarily reflect the views of my employer.