The prospect of a deal is eye-opening based on the numbers alone. If Qualcomm were to pay a typical deal premium to acquire Intel, which is currently valued at $93 billion, it would be the largest tech merger in history, exceeding Microsoft’s $69 billion purchase of Activision Blizzard last year.

But there’s a long road ahead. For one, any transaction faces intense regulatory scrutiny and would require approval from global governments. Intel was unable to complete a much smaller $5 billion acquisition of Israel’s Tower Semiconductor in 2023 after failing to get approval from China.

China, which isn’t eager to help the U.S. chipmaking business, is unlikely to go along with a much larger deal in the form of Intel-Qualcomm.

Meanwhile, it isn’t clear that a deal for Intel would strengthen Qualcomm. The vast majority of Qualcomm’s business comes from selling smartphone processors, 5G wireless chips, and licensing mobile technology. There isn’t much synergy with Intel’s core x86 PC and server processor business, which has been losing significant market share to Advanced Micro Devices

AMD

+0.51%

in recent years.

Intel’s PC chips have already been eclipsed by in-house offerings from Apple and others, which draw on designs from Arm Holdings

ARM

+2.03%

. On the data center side, New Street Research estimates that AMD’s x86 server processor business will reach 40% market share by year-end, up from less than 5% four years ago. Those gains have come at the expense of Intel, making it that much less attractive to Qualcomm, or any other suitor.

A merger won’t fix Intel’s biggest problem, its foundry, or chip manufacturing business. For Intel Foundry to succeed, the company needs a flagship U.S. customer like Apple, AMD, or Nvidia

NVDA

+0.22%

. While Intel has announced smaller deals, including one with Amazon Web Services last week, they’re not large enough to matter. Amazon is sticking with Taiwan Semiconductor Manufacturing to manufacture its more critical AI chips, including Trainium and Inferentia.

Part of Intel Foundry’s problem stems from an inherent business issue: As long as Foundry is a part of Intel, it’s likely to face hurdles signing big contracts with Intel’s chip rivals.

The better and more likely outcome here is for the U.S. government to support a fully separate and renamed Intel Foundry spinoff, while helping the business earn support from major American technology companies looking for an alternative chip making partner.

In its current state, Intel Foundry’s build out is weighing on the parent company. Intel had more than $10 billion of negative free cash flow, or cash burn, in the first two quarters of this year.

Having an advanced U.S.-based chip maker is an obvious national security goal. Making it happen logistically, politically, and effectively is easier said than done.

Investors are already expressing doubts about a Qualcomm-Intel tie-up. Qualcomm shares have fallen 3% since the Wall Street Journal reported on a potential deal.

Shares of Intel are up 11% over that stretch.

Write to Tae Kim at tae.kim@barrons.com