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Hedge Fund Urges Intel To Explore Going Fabless, Selling ‘Failed Acquisitions’

‘Without immediate change at Intel, we fear that America’s access to leading-edge semiconductor supply will erode,’ Third Point founder Daniel Loeb said in a letter to the chipmaker’s board, calling for Intel to explore whether it ‘should remain an integrated device manufacturer.’

New York-based hedge fund Third Point LLC has taken a “significant stake” in Intel and is calling for the semiconductor giant to explore selling its manufacturing operations and “failed acquisitions” to combat declining market share and customers making their own chips.

Third Point urged Santa Clara, Calif.-based Intel to hire an investment advisor to consider the measures, among other “strategic alternatives,” in a Tuesday letter to Omar Ishrak, chairman of Intel’s board. The letter, written by Third Point CEO and founder Daniel S. Loeb, said the firm plans to acquire more shares of the company and would consider submitting nominees for Intel’s board at the 2021 Annual Meeting if the company expresses “reluctance” to consider the firm’s recommendations.

[Related: Microsoft Is Working On Arm-Based Chips For Azure, Surface PCs: Report]

Intel, in a brief statement posted to its website, said it “welcomes input from all investors regarding enhanced shareholder value.” The company added: “In that spirit, we look forward to engaging with Third Point LLC on their ideas towards that goal.”

The chipmaker’s stock price was up more than 4 percent Tuesday afternoon.

In the letter, which Third Point provided to CRN, Loeb called for Intel to explore whether it “should remain an integrated device manufacturer and the potential divestment of certain failed acquisitions.” Citing unnamed sources, Reuters reported that the changes could include separating Intel’s chip design operations from manufacturing.

The hedge fund executive in the letter also said Third Point would like to discuss privately “other specific issues” and is confident its “specific recommendations” will be welcomed by the board and other shareholders.

Loeb said his firm is calling for these changes as Intel’s shares have “dramatically underperformed” in comparison to its peers, losing more than “$60 billion of market capitalization over the past year alone.”

This has happened in the face of chip manufacturers TSMC in Taiwan and Samsung in South Korea moving to 5-nanometer processes this year—enabling them to create denser, more efficient computer chips—while Intel “has been stuck at its 14nm node since 2013” and will be “several years behind its Asian peers” until at least 2025 with its recent 7nm issues, according to Loeb.

Intel, in a recent press release, said the company has doubled its “combined 14nm and 10nm manufacturing capacity” in 2020, compared to its 2017 wafer capacity. The company is now onto its second wave of 10nm volume products with the new Tiger Lake laptop processors, though the company has delayed its Ice Lake server processors, previously scheduled for a 2020 launch, to next year.

Bob Swan, Intel’s CEO, said in October that the company will decide by January whether the chipmaker will further invest in its 7nm manufacturing capabilities or outsource at least some 7nm products to external foundries. The company is considering its options after identifying a defect in its 7nm process that caused a six-month delay for 7nm products.

The manufacturing gains made by TSMC and Samsung have allowed fabless semiconductor companies AMD and Nvidia to gain market share and dominate the nascent AI training model market, respectively, Loeb said. At the same time, major Intel customers like Apple, Microsoft and Amazon have begun developing their own chips, which are then manufactured in East Asia, he added. To retain customers shifting to in-house chip designs, Loeb said Intel must offer them “independent solutions” that will keep manufacturing stateside.

“Without immediate change at Intel, we fear that America’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,” Loeb wrote.

CNBC and Reuters first reported the news Tuesday.

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