INTC Intel Corporation

By Asa Fitch 

Activist hedge fund Third Point LLC is urging Intel Corp. to consider strategic changes after a year in which the U.S. semiconductor giant suffered new product delays and lost its rank as America's most valued chip company.

Third Point, in a Tuesday letter to Intel Chairman Omar Ishrak, said "We suggest the board retain a reputable investment advisor to evaluate strategic alternatives, including whether Intel should remain an integrated device manufacturer and the potential divestment of certain failed acquisitions."

Intel said it "welcomes 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."

Intel, which both designs and builds its own chips, this year said it would consider outsourcing the manufacture of some of its most advanced chips. The company is expected to make a decision soon on where it will make future generations of processors.

Third Point said that unless Intel takes actions it could have broader implications for U.S. tech supremacy. "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," the letter says.

Third Point's letter said Intel also should address the recent departure of top chip designers and what it called an "increasingly demoralized" remaining engineering staff. The letter was reported earlier by Reuters.

Intel shares rose more than 5% after Third Point's letter.

Intel has fallen behind Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. in the race to make the most cutting edge chips. TSMC makes chips under contract for some Intel competitors, including Nvidia Corp. and Advanced Micro Devices Inc.

AMD's latest generation of central processing units, or CPUs, have eaten away at Intel'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 Inc., Microsoft Corp. and Amazon.com Inc. Apple this year opted to use in-house chips for its some of its latest Mac computers, dropping Intel as a supplier.

"You must be able to offer new independent solutions to retain those customers rather than have them send their manufacturing away," the letter says.

Intel shares are down more than 17% this year. Nvidia's stock has more than doubled and AMD's shares are up almost as much.

"You must be able to offer new independent solutions to retain those customers rather than have them send their manufacturing away," the letter says.

Intel shares are down more than 17% this year. Nvidia's stock has more than doubled and AMD's shares are up almost as much.

Nvidia and AMD are using some of that investor enthusiasm to put further pressure on Intel. Nvidia has agreed to buy mobile-phone chip design giant Arm Holdings in a $40 billion deal in what would be the largest-ever deal in the chip business. AMD said it would use stock to buy chip maker Xilinx Inc. in a $35 billion deal.

Third Point, in the letter, said the board allowed management to "fritter away" the company's advantages while paying executives lavishly even as Intel lost more than $60 billion of market capitalization this year.

"Stakeholders will no longer tolerate such apparent abdications of duty, " it said, pointing to the company's loss of chip-design talent as a top concern.

Third Point recently acquired a stake in Intel that a spokeswoman for the hedge fund said was worth roughly $1 billion. The investor said it would submit nominees for election to Intel's board at the company's annual meeting next year if Intel was reluctant to address its concerns, the letter said.

Despite the headwinds, Intel said it expects to post record sales this year, boosted by pandemic-era demand for PCs and cloud computing.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

December 29, 2020 14:39 ET (19:39 GMT)

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