Qualcomm's potential break-up could lead to courtship with Intel

By Lehar Maan and Devika Krishna Kumar

(Reuters) - It could be a match made in heaven.

Wall Street says Intel Corp is the best suitor for Qualcomm Inc's chip unit, if the maker of Snapdragon mobile processors decides to break itself up.

"The chip deal to end all chip deals," says Cowen and Co analyst Timothy Arcuri, would give Intel's smartphone chip making business a much-needed boost.

It would also allow Intel to expand its footprint in the key Chinese market.

Other suitors for Qualcomm's chip business, valued at $30 billion-$40 billion, could include a consortium backed by the Chinese government and Samsung Electronics Co Ltd.

Qualcomm said on Wednesday that it was weighing a possible separation of its two businesses, a move prompted by activist shareholder Jana Partners, which had a 1.7 percent stake in the company as of March 31.

The maker of computing and communication chips for mobile devices has been losing ground to Asian rivals such as MediaTek Inc, whose cheaper versions have given them an edge in the price-conscious Asian market.

Longtime customer Samsung's decision to use its own chips in its flagship Galaxy S6 smartphone instead of Qualcomm's Snapdragon has added to the company's woes.

A deal with Intel, which has its own foundries, will help Qualcomm cut costs and price its chips more competitively.

"... This would catapult Intel into the leadership position and give it diversity away from PCs that it very much needs," Ascendiant Capital Markets analyst Cody Acree said.

Intel and Qualcomm declined to comment.

Cowen's Timothy Arcuri said the business could be worth about $20 per share — less than a third of Qualcomm's current share price — and Intel could offer $25 per share.

ANALYSTS SPLIT OVER SPLIT

But Arcuri and several other analysts are not sure a split makes sense in the first place.

Qualcomm funnels licensing profits into the chip business and a possible split raises questions about the unit's ability to sustain itself as an independent entity.

"... We worry that the loss of its golden goose would seriously harm (the chip unit's) ability to dramatically out-spend competitors on research and development," Arcuri said.

Drexel Hamilton analyst Richard Whittington said Qualcomm was unlikely to go through with the split, but if it did, Intel would be a good fit.

"I can't see how they can possibly segregate the two. Whatever short term gain is derived, would be more than made up with permanent loss of market share in ... two to three years," he said, adding that Qualcomm could instead look to partner with Intel or smaller Chinese and Korean companies.

(Editing by Sayantani Ghosh and Simon Jennings)