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Normally, I try to ignore rumors, but this one is simply too big to ignore. The word on the street is that Intel (NASDAQ:INTC) has entered into M&A talks with the world’s leading chip designer, the UK’s own ARM Holdings (LSE:ARM). ARM’s share price has risen over the past week from 960.0 on 18 September to as high as 1,015 on 19 September as the rumor has gained some legs. Although the shares have been up and down over the past week, they have been holding above the 1,000.0 mark. This is the highest that ARM has reached since May, the only other time that the stock has been above 1,000.0. In the interim the price had fallen as low 765.0 by 13 July, but has been on the rise ever since, increasing sharply over the last 10 days.
Having said that, I am not one to pin an up or a down on a singular bit of news. So I am inclined to posit that the Intel rumor is only a contributor to the so-called surge. After all, the introduction of the new iPhone this past weekend might have also contributed to the movement, both in terms of anticipation and reaction. With over nine million iPhones sold over three days, the demand means more ARM chips, more royalties to be gained, and more profit to be retained and shared.
But what about the rumor. Actually, at this point, I don’t believe that the rumor can be substantiated. However, we may have finally reached the point is the seemingly endless war for the chip market where a truce culminating in an alliance may be the ideal resolution. This is more that “if you can’t beat them, join them.” Intel has been focusing on gaining ground where ARM has been so dominant in the mobile device arena. Nonetheless, there is a massive amount of ground that Intel still needs to gain as the mobile market keeps growing and the PC market is declining. The technical advances in the expanding mobile market are coming along so rapidly that catching is hard for Intel to do.
There are many reasons why the acquisition would make good sense from a financial standpoint, but I believe that strategically the case is even stronger. If managed properly, the alliance, in whatever form it takes, would not only create a the most dominant driving force ever in the semiconductor business, but literally millions of dollars heretofore spent in trying to capture customers and market sectors could be spent on R&D that would permit the new entity to be both dominant and nimble. That is what would make this a windfall, not only for ARM executives and shareholders, but for the world at large. This alliance has the potential to drive innovation across all market sectors even faster than it is moving now.
I can’t tell you whether the rumor is true or not, but I’m going to go with the “where there is smoke, there is fire” theory on this one and suggest that we watch cautiously and patiently to see if the flames emerge.
