According to reports from the Wise Finance APP, as revealed by insiders, Apollo Global Management (APO.US) has proposed investing billions of dollars in Intel (INTC.US). This move will be a vote of confidence in the turnaround strategy of the chip manufacturer.

One insider mentioned that Apollo Global Management recently hinted at being willing to make a stock investment of up to $5 billion in Intel. The insider stated that Intel executives have been considering the proposal from this alternative asset management company. The insider also added that nothing is finalized yet, the potential investment size may change, and negotiations could break down leading to no final agreement.

It is worth mentioning that the two companies have already established a partnership. Intel agreed in June to sell its joint venture stake in a factory in Ireland to Apollo Global Management for $11 billion, providing more external funds for its large-scale expansion of the factory network.

Concerns Arise Over Poor Performance

In early August, Intel's financial report showed that the company's second-quarter sales fell 1% year-on-year to $12.8 billion, lower than analysts' expectations of $12.95 billion. Adjusted earnings per share were $0.02, lower than analysts' expectation of $0.10. In addition, the company expects third-quarter sales to reach $12.5 billion to $13.5 billion, well below analysts' expectations of $14.38 billion. It is forecasted that the adjusted loss per share will be $0.03, while analysts expect earnings per share of $0.30.

Intel also announced layoffs of more than 150,000 people and suspended its dividend, which had been in effect since 1992. The company hopes to promote the transformation of its operating model and reverse the long-term losses in the chip manufacturing business. CEO Pat Gelsinger said that the company plans to cut $10 billion in expenses by 2025, and therefore "must adjust the cost structure to match the new operating model."

This performance highlights Intel's struggles in achieving ambitious transformation and facing various unfavorable factors in the era of artificial intelligence competition. Intel's investors have lost patience with the company's turnaround plan, which involves significant investments in new chips and production technologies, while Intel is attempting to do so amidst shrinking revenue. More importantly, Intel's current products are not what those investing in AI infrastructure want, meaning Intel is losing market share.

Poor performance led to a sharp drop in Intel's stock price, causing the company's market cap to evaporate by hundreds of billions of dollars and shattering the last bit of confidence in Pat Gelsinger's turnaround plan when he took over as CEO of Intel in 2021. Although Apollo Global Management is now best known for its insurance, acquisition, and lending strategies, the company started in the 1990s as a distressed asset investment expert.

Is Intel going to be acquired?

According to reports, Qualcomm (QCOM.US) has recently contacted Intel and is in talks with the latter regarding a potential acquisition. However, it is currently unclear what Intel's response is, as well as the terms or quotes for the acquisition. Sources have mentioned that Qualcomm executives are very interested in Intel's client PC design business, but they are considering all design departments of the company. Intel is currently working on generating cash and seeking to divest business units and sell other assets.

If the acquisition is successful, it would be one of the largest acquisitions in the history of technology. Of course, such a massive acquisition comes with great uncertainty, even if both parties are willing, as it would still have to undergo rigorous antitrust scrutiny.

Intel (INTC.US) welcomes multiple bullish factors.

For Intel, which is currently in financial distress, improving capital efficiency and reducing financial burdens are undoubtedly the top priorities.

A statement released last week revealed that Intel will be manufacturing custom artificial intelligence (AI) chips for Amazon (AMZN.US), with the two reaching a multi-year collaboration framework for products and wafers. Intel and Amazon's cloud computing service division AWS will jointly invest in custom semiconductors for AI computing, leveraging Intel's 18A technology, which is an advanced chip manufacturing technology.

In addition, Intel will establish Intel Foundry Services (IFS) as an independent division. In order to attract more customers, Intel plans to separate the foundry business from its other businesses and make it a wholly-owned subsidiary. This move aims to demonstrate to potential customers that IFS is an independent supplier, especially for those companies that compete with Intel, so that they can collaborate with Intel with more confidence.

Intel also stated that it is eligible for up to $3 billion in funding from the US government to manufacture chips for the military. Intel has also postponed the construction of new factories in Germany and Poland, but remains committed to expansion in the US states of Arizona, New Mexico, Oregon, and Ohio; the projects in Poland and Germany will be suspended for about 2 years based on market demand. Intel said another factory in Malaysia will be completed, but will only start operation if conditions support.