Activist hedge fund Third Point LLC pressed
to make sweeping strategic changes after a year in which the U.S. semiconductor giant suffered more product delays and lost its rank as Americaâ€™s highest-valued chip company.
In a letter Tuesday to Intel Chairman
Third Point Chief Executive
said Intelâ€™s woes could threaten the U.S. tech industry and urged the chip maker to consider alternatives, including selling some of its acquisitions and splitting its design and manufacturing operationsâ€”a move that would end Intelâ€™s long-held status as Americaâ€™s leading integrated semiconductor maker.
Intel said it â€œwelcomes input from all investors regarding enhanced shareholder value. In that spirit, we look forward to engaging with Third Point LLC on their ideas towards that goal.â€�
Third Pointâ€™s demands follow years of engineering struggles at Intel and growing competitive pressure from rivals that outsource their chip manufacturing to factories in Asiaâ€”including
, which surpassed Intel in market capitalization in 2020. Intel this year pushed back production of its most advanced chips, was dumped by
as the supplier for its Mac computer processors and lost market share to former distant rival
â€œWithout immediate change at Intel, we fear that Americaâ€™s access to leading-edge semiconductor supply will erode, forcing the U.S. to rely more heavily on a geopolitically unstable East Asia to power everything from PCs to data centers to critical infrastructure and more,â€� Mr. Loeb wrote in Third Pointâ€™s letter.
Mr. Loeb also said Intel should address the recent departures of top chip designers and what he called an â€œincreasingly demoralizedâ€� remaining engineering staff. The letter was reported earlier by Reuters.
Intel shares closed up 5% after Third Pointâ€™s letter.
The chip maker said this year that it would consider outsourcing the manufacturing of some of its most advanced chips. The company is expected to decide next month where it will make future generations of processors.
Intel has fallen behind
and South Koreaâ€™s
in the race to make the most cutting-edge chips. TSMC makes chips under contract for some Intel competitors, including Nvidia and AMD.
As TSMC and Samsung gradually shrunk their transistors in recent years, leading to higher-performance chips, Intelâ€™s strategy to aggressively downsize its circuitry stumbled. In July, Intel said it encountered new delays in developing its latest chip technology, which it said was roughly a year behind its initial targets. Soon after, it shook up its engineering team, with chief engineering officer
Venkata â€œMurthyâ€� Renduchintala
leaving the company.
AMDâ€™s latest generation of central processing units, or CPUs, have eaten away at Intelâ€™s market share in PCs and servers that go into big data centers. Nvidia, meanwhile, dominates the burgeoning market for artificial-intelligence processing, where its graphics chips excel.
Third Point said Intel also faces competitive threats from the growth of custom chip-making by big tech companies like Apple,
Apple this year opted to use in-house chips for some of its latest Mac computers, dropping Intel as a supplier.
â€œYou must be able to offer new independent solutions to retain those customers rather than have them send their manufacturing away,â€� Third Pointâ€™s letter says.
Intel shares are down more than 17% this year. Nvidiaâ€™s stock has more than doubled and AMDâ€™s shares are up almost as much.
Nvidia and AMD are using some of that investor enthusiasm to pressure Intel further. Nvidia has agreed to buy mobile-phone chip design giant Arm Holdings in a $40 billion deal that would be the largest ever in the chip business. AMD said it would use stock to buy chip maker
in a $35 billion deal.
Third Point said in its letter that Intelâ€™s board allowed management to â€œfritter awayâ€� the companyâ€™s advantages while paying executives lavishly even as Intel lost more than $60 billion of market capitalization this year.
â€œStakeholders will no longer tolerate such apparent abdications of duty,â€� it said, pointing to the companyâ€™s loss of chip-design talent as a top concern.
an analyst at Bernstein Research, said Intel was likely already considering the restructuring ideas Third Point proposed. He said it wasnâ€™t clear how separating the companyâ€™s chip-making operations from its chip-design unit would add value for investors. â€œIt doesnâ€™t fix the manufacturing problem, which is the root of everything thatâ€™s going on,â€� he said.
Third Point recently acquired a stake in Intel worth roughly $1 billion, according to a spokeswoman for the hedge fund. The investor said it would submit nominees for election to Intelâ€™s board at the companyâ€™s annual meeting next year if Intel were reluctant to address its concerns, the letter said.
With its large size and growing revenues, Intel hasnâ€™t faced major activist-investor pressure in recent years, even as some of its peers stared down calls for change. Smartphone-chip giant
came under pressure from activist investor Jana Partners LLC in 2015, which advocated breaking up the companyâ€™s chip-design unit from its patent-licensing division. The company decided against a split, and Jana withdrew.
Despite its woes, Intel has said it expects to post record sales this year, boosted by pandemic-era demand for PCs and cloud computing.
Write to Asa Fitch at [email protected]
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