The semiconductor business is a highly cyclical one, with average length of technology agreements lasting for not more than four quarters. Thus, as the end of every year approaches, you’ll see various rumors taking shape – which are a typical result of companies discussing supply for the next product cycle. One traditional rumor is the negotiation for the Apple TV between Apple and Sharp, for example – which if true, would typically be agreed around 2-3 cycles in advance, rather than a “let’s do it tomorrow” gung-ho approach which rumor sites typically insist on.

Thus, when we heard a rumor that Intel and Nvidia are sitting at “a coffee table” discussing the future developments, cross licensing and the like… we dismissed it as a seasonal thing. Remember, Intel is still paying Nvidia installments of that chipset blunder settlement of yesteryear. That sum is totaling $1.5 billion dollars, and represents nothing but a chink in Intel’s armor (2011 revenue: $54.0 billion, 2011 net income: $17.5 billion).

During the recent travels in the U.A.E., we heard a rumor which is bound to arrive on one website or another. The people who talked to us stated that the rumored acquisition talks are an extension to the technology licensing one, and that the “book of magic”, Nvidia’s standard ToE – should the company end up being acquired. Both companies have an active NDA which prevents them to talk about the said deal. The in-depth NDA (which enables to dig around finances, finding skeletons in the closet, etc.) comes from the first talks both companies had about the acquisition, which would have seen Intel Sandy Bridge and Ivy Bridge processors to be powered by GeForce graphics. Nvidia said no, as we all know now.

This time around, our sources have said that Intel did not categorically say no to one of requirements, should Nvidia be acquired – and that is that the CEO of Nvidia and the senior management take over the respectable roles in the new entity, regardless of the entity size. Remember that this requirement sunk the finalization of Nvidia-AMD tie up in 2005, which in turn ended with AMD paying $5.9 billion for ATI Technologies.

Bear in mind that Intel’s BoD announced that for the first time in history, the company is considering an external person for the role of CEO, as the investors feel that the company hasn’t done enough in the mobile segment. Naturally, investors in general don’t have a clue how semiconductor companies work and make profit, since for every smartphone there is a high revenue chip that delivers the service – but the Street wants to see companies battling for pennies on the dollar. As the old credo goes – What The Street wants, The Street Gets – and Intel is now entering the pennies (SoC) versus dollar (Enterprise CPUs) market in terms of profits. The difference between Nvidia and a lot of other companies is that Jen-Hsun Huang, the founder and CEO enjoys full support of the Nvidia’s Board of Directors, and previous acquisition attempts (made by Intel as well) all landed on rocky surface. Howevever, should the Nvidia receive what they want (a CEO position), then everything could be arranged.

Nvidia has shown it can raise to the challenge in almost any market, even when the result is that Intel, the co-founder of GENIVI automotive electronics alliance – gets thrown out from BMW cars and replaced with Tegras (for the infotainment system, of course). The company is currently valued at just $7.82 billion, which is a small chunk of change for Intel, which had higher profits. Given the cost of IP and other liabilities, the acquisition would probably not be below $15 billion – but that’s a wide ballpark figure.

Just like the upcoming merger between American Airlines and US Airways, where US Airways will “eat up” American and end up being named American (don’t ask for logic, stronger brand name survives) – but having US Airways management for the company’s leadership. Similar things happened with Continental and United merger, where the CEO of a smaller company ended up running a bigger entity. If we really end up with Jen-Hsun Huang at the head of Intel Corporation, even if for a limited time, that would be a shift in several orders of magnitude. Nvidia with Intel’s resources? This rumor should be taken not with a grain of salt, but rather with a whole 18-wheeler truck filled with the said ingredient.

And if you think that this is absolute crazy, remember – it was Intel that came to Nvidia to ask for GeForce GPU to be integrated with the Intel x86 CPU for products which you know today as Sandy Bridge, Ivy Bridge, Haswell and all. Regardless of what Intel soldiers tell you, most of improvements of the said CPUs were in the GPUs.

Personally, as an industry insider with 13 years of experience – I’ve seen stranger things happen, but I would say this rumor would even make sense. As a disclaimer, I do not own stocks in any of the companies we report about.

Original Author: Theo Valich

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