Intel Urged To Consider Strategic Options

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Activist shareholder urges Intel to consider its strategic options, and whether it should outsource chip production to third parties

Intel has had a couple of rough years in the face of increasing competition from AMD, ARM and Nvidia, and the ending of 2020 has also given the chip giant another issue to contend with.

According to Reuters, activist hedge fund Third Point LLC is now pushing Intel to explore its strategic alternatives going forward.

The call for a reassessment from disgruntled shareholders is hardly surprising. In July graphics chip powerhouse Nvidia overtook Intel in value, after its share price rose higher, pushing its market capitalisation above that of its rival.

Strategic change

Reuters reported that Third Point send a letter to Intel’s chairman this week, in which the hedge fund asked Intel’s board of directors to consider whether the firm should keep chip design and production under one roof.

That would be a major change for Intel, which so far has not engaged with investor calls to outsource more of its manufacturing capacity. It could also lead to the unwinding of some of Intel’s acquisitions over the past decade, including the $16.7 billion purchase of Altera in 2015.

Third Point chief executive Daniel Loeb wrote to Intel chairman Omar Ishrak, Reuters reported, calling for immediate action to boost the company’s position as a major provider of processor chips for PCs and data centres.

It is understood that the New York-based fund has a nearly $1 billion stake in Intel, according to people familiar with the matter.

Loeb’s letter stated that Intel’s most urgent task was addressing its “human capital management issue,” as many of its talented chip designers have fled, “demoralized by the status quo.”

Loeb also noted that Intel has lost its pole position in microprocessor manufacturing to Taiwan Semiconductor Manufacturing Co and South Korea’s Samsung Electronics.

Declining share

He added that Intel is also losing market share in its core PC and data centre markets to Advanced Micro Devices, and Nvidia is dominating computational models used in artificial intelligence applications, a market from which Intel has been largely absent.

“Without immediate change at Intel, we fear that America’s access to leading-edge semiconductor supply will erode, forcing the US to rely more heavily on a geopolitically unstable East Asia to power everything from PCs to data centres to critical infrastructure and more,” Loeb reportedly wrote.

Loeb also asked Intel to retain an investment adviser to evaluate strategic alternatives, including whether it should remain an integrated device manufacturer and the potential divestment of failed acquisitions, according to the letter.

Third Point believes that Intel should consider separating its chip design from its semiconductor fabrication plant manufacturing operations, according to the sources. This could include a joint venture in manufacturing, Reuters reported.

Intel response

And the hedge fund issued a thinly veiled threat to Intel’s board.

Loeb said in the letter that Third Point reserved the option to submit nominees for election to Intel’s board at its next annual meeting, should it sense “a reluctance to work together to address the concerns” it raised.

Intel said that it would ‘engage’ with Third Point about the issues it raised.

“Intel welcomes input from all investors regarding enhanced shareholder value,” the chip giant said in a statement. “In that spirit, we look forward to engaging with Third Point LLC on their ideas towards that goal.”

Intel has had a rough time, thanks in part to a stagnant PC market over the past decade, and a lengthy delay in the development of its “Tiger Lake” 10-nanometre processors.

But the Coronavirus pandemic has led to a surge in demand for laptops and computers, but some feel that Intel has failed to capitalise on the growing need for semiconductors in areas such as artificial intelligence, data centres and smartphones.

Indeed, traditional Intel customers such as Apple, Microsoft, and Amazon are all developing their own in-house silicon solutions.

Intel also reportedly lost one of its veteran chip designers, Jim Keller, in June over a dispute on whether the company should outsource more of its production, sources said at the time.

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Author: Tom Jowitt
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