Hedge fund Third Point urges Intel to explore deal option
Hedge fund Third Point LLC is pushing Intel Corp to explore strategic alternatives, including whether to keep chip development and manufacturing under one roof, according to a letter the fund sent to the company’s chairman on Tuesday and reviewed by Reuters..
If supported, Third Point’s drive to change could cause serious disruption at Intel, which has been slow to respond to investor calls to outsource more of its manufacturing facilities. It could also lead to the cancellation of some acquisitions, such as the $ 16.7 billion purchase of programmable chip maker Altera in 2015..
Executive Director Third Point Daniel Loeb (Daniel Loeb) wrote a letter to the chairman of Intel Omar Ishraku (Omar Ishrak), which called for immediate action to strengthen the company’s position as a major supplier of processor chips for PCs and data centers. The New York-based foundation has amassed nearly $ 1 billion in Intel stake, according to sources familiar with the matter..
Intel shares rose 6.1% to $ 49.95, the highest in more than eight months after the news broke, bringing the company’s market value to over $ 200 billion. Stocks are down about 21% this year, compared to a 43% rise in the Nasdaq Composite.
Intel’s most pressing challenge was to tackle it. «human capital management problems», as many of her talented chip designers have fled, «demoralized status quo», – Loeb wrote in a letter.
In the letter, Loeb wrote that Intel has ceded its positions in microprocessor manufacturing to Taiwan Semiconductor Manufacturing Co and South Korean Samsung Electronics Co Ltd..
Intel is also losing market share in its mainstream PCs and data centers in favor of Advanced Micro Devices Inc (AMD), Loeb added. According to the letter, NVIDIA Corp dominates compute modules used in artificial intelligence applications, while Intel is largely absent from this nascent market..
«Without immediate changes at Intel, we fear America’s access to advanced semiconductor supplies will be undermined, forcing the US to rely more heavily on geopolitically volatile East Asia to power everything from PCs to data centers, critical infrastructure, and more..», – wrote Loeb.
In a brief statement, the Santa Clara, California-based company said: «Intel welcomes all investors to contribute to shareholder value. In that spirit, we look forward to chatting with Third Point LLC on their ideas to achieve this goal.».
According to the letter, Loeb asked Intel to hire an investment consultant to assess strategic alternatives, including whether it should remain an integrated device manufacturer and the potential sale of failed acquisitions. Third Point believes Intel should consider separating chip design and design from the manufacturing operations of the semiconductor plant. According to sources, this may include the creation of a joint venture in production.
«Intel customers such as Apple Inc, Microsoft Corp and Amazon.com Inc develop their own solutions and ship them for production in East Asia», – written by Loeb. He suggested that Intel follow the same pattern..
Third Point, which manages $ 15 billion in assets, has a track record of pushing companies to close deals, including with Prudential Plc, Yum! Brands Inc, Dow Chemical and United Technologies. Third Point’s offshore fund grew 19.9% year-over-year to mid-December, according to a source familiar with the situation..
Loeb said in the letter that Third Point reserves the right to nominate candidates for election to Intel’s board of directors at its next AGM if he feels «unwillingness to work together to resolve issues raised».
The COVID-19 pandemic has given Intel a boost in laptop sales as employees and students work and study from home. But the company has failed to capitalize on strong demand for semiconductors in the broader sense needed for everything from smartphones to artificial intelligence to function..
This is because Intel’s own manufacturing facilities often struggle to make the custom chips their customers need. The ability of its competitors to leverage a wide network of suppliers also means that many of its offerings lag behind competitors in speed and energy consumption..
Separating design and manufacturing could help it produce better chips at a lower cost by outsourcing its most advanced CPUs, something that executives have long resisted..
But selling Intel factories, or even opening them up for contract manufacturing, can be challenging as they focus on their own design process rather than broader industry standards that other companies follow..
Concerns about US national security could be another obstacle to potential asset sales. Intel’s most significant manufacturing competitors – TSMC and Samsung – have manufacturing bases overseas, and it is unclear whether regulators will approve the sale of any Intel chip-making operations to a foreign company given its central role in the supply chain..
Intel appoints its former CFO Bob swan (Bob Swan) as CEO last year. The company lost one of its leading and experienced chip developers in June., Jim Keller (Jim Keller), over a dispute over whether a company should outsource more of its products.