Activist hedge fund calls for major changes at Intel

Intel has been going through a rough patch and now a major activist investor wants to help right the ship.

Daniel Loeb, chief executive of hedge fund Third Point LLC, wrote a letter to Intel Chairman Omar Ishrak on Tuesday calling on the chipmaker to hire an investment adviser to explore “strategic alternatives” aimed at regaining market share from competitors, particularly Taiwan Semiconductor Manufacturing Company and Samsung.

The suggestions in the letter — which include calls for the company to more seriously consider whether to continue making all of its chips in-house and divesting from “failed acquisitions” — could lead to major changes if Intel acts upon them.

Intel said in a statement Tuesday that it welcomes investor input. “In that spirit, we look forward to engaging with Third Point LLC on their ideas towards that goal,” it said.

Intel has long been known for doing both its chip design and production in-house. But that approach has been called into question as Intel has fallen behind TSMC and Samsung in producing the most advanced microprocessors.

Intel in recent years struggled to move from a 14-nanometer to a 10-nanometer chip, and said in July that its 7-nanometer chips (which some of its rivals already have) would also be delayed. Meanwhile, Intel’s competitors continue to move ahead with developing even smaller, more powerful processors.

Intel CEO Bob Swan began suggesting this year that the company could outsource some chip production, though analysts have had mixed opinions about precisely what such a move would look like. Intel’s challenges have been a major boost to TSMC.

“The loss of manufacturing leadership and other missteps have allowed several semiconductor competitors to leverage TSMC’s and Samsung’s process technology prowess and gain significant market share at Intel’s expense,” Loeb wrote in the letter, which was shared publicly.

Third Point has a nearly $1 billion stake in Intel, according to a spokesperson for the hedge fund. It is not currently among the top ten owners of Intel stock, according to CNN Business data, but Loeb said in the letter that the fund is filing for approval from the Federal Trade Commission to acquire additional shares and preserve the option to submit board nominees at Intel’s 2021 annual meeting “should we sense a reluctance to work together.”

Intel’s stock ended Tuesday up nearly 5% following news of Loeb’s letter. The chipmaker’s shares have fallen nearly 19% this year, even though the PC market received a boost from the shift to working from home during the pandemic.

Meanwhile, Intel competitors have had a solid year. AMD, which is eating away at Intel’s share in the PC and data center markets, is up 85% since the start of 2020 (its stock price also grew 150% last year). Nvidia, a leading producer of graphics chips for the growing gaming market, is up 116% this year. And TSMC and Samsung’s stock prices have gained 76% and 42%, respectively.

Intel was also recently dealt a blow when Apple announced it will use its own processors, rather than Intel’s, in its new series of Macs.

“You must be able to offer new independent solutions to retain those customers rather than have them send their manufacturing away,” Loeb said in his Tuesday letter. He added that if Intel falls too far behind semiconductor manufacturers in Asia, it could pose a threat to American national security (some US officials have raised similar concerns about national security issues if America falls too far behind in semiconductor manufacturing).

He also urged Intel to address its “human capital management issue,” saying that many talented chip designers and leaders have left the company and those remaining are being “demoralized by the status quo.”

Loeb did not elaborate on which of Intel’s acquisitions he considered “failed” bets. Among the chipmakers recent purchases: In 2015, it bought programmable chip firm Altera for $16.7 billion; In 2017, it purchased self-driving car firm Mobileye for $15 billion in 2017 and in May, it acquired digital mobility firm Moovit for $900 million. The latter two deals were aimed at bolstering the company’s efforts in the self-driving tech space.