Intel Urged by Activist Hedge Fund to Outsource Manufacturing

In a letter to Intel’s chairman, Third Point LLC, a $15 billion USD hedge fund that currently holds a stake of nearly $1 billion USD in the company, implored the semiconductor and processor manufacturer to explore and adopt alternative strategies to regain its rightful place in the market — reports Reuters.

Despite Intel shares rising 6.1% (to $49.95 USD) after news of the letter broke, its stock has seen an overall decline of 21% Year to Date.

Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. Ltd. have already surpassed Intel as the leading manufacturers of microprocessors, and the company is constantly losing its share in the PC market to Advanced Micro Devices (AMD) Inc.

In addition, Intel is currently bleeding customers as big buyers like Apple Inc. and Microsoft Corporation move towards designing and producing their own silicon.

Third Point’s goal, one the investor would like Intel to align with as well, is to put the company back into the throne of the premier purveyor of processors for PCs and data centers across the globe.

In the letter Third Point CEO Daniel Loeb wrote to Intel Chairman Omar Ishrak, the shareholder’s main demands are that Intel reconsider its position on keeping both chip design and manufacturing in-house, consider divesting failed acquisitions like Altera — the programmable chipmaker Intel acquired back in 2015 for $16.7 billion USD, and retain an investment adviser to evaluate alternative strategies that could facilitate the company’s growth.

In his letter, Loeb also names Intel’s “human capital management issue” as the first that needs attention, referring to the recent exits of many of Intel’s expert chip designers like Jim Keller, who jumped ship back in June.

Revealing the stick that could take the carrot’s place, Loeb’s letter stated that Third Point could exercise its right to name nominees for election to Intel’s board at the company’s next annual meeting, in the event that the shareholder detects “a reluctance to work together to address the concerns” it has.

The company’s response to Third Point’s letter read: “Intel 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.”

Back in 2011, late Apple co-founder Steve Jobs voiced his displeasure with Intel, according to Walter Isaacson’s biography, “Steve Jobs”.

“There were two reasons we didn’t go with them. One was that they [the company] are just really slow. They’re like a steamship, not very flexible. We’re used to going pretty fast. Second is that we just didn’t want to teach them everything, which they could go and sell to our competitors,” said Jobs according to the biography.

Jobs also criticized the power demands of Intel chips. Which, if we take a look at Apple Silicon M1 today, we now see how terrible Intel CPUs are at managing power.

“At the high-performance level, Intel is the best,” said Jobs in the biography. “They build the fastest, if you don’t care about power and cost.” The late Apple CEO added, “We tried to help Intel, but they don’t listen much.”