Activist Hedge Fund advises Intel to outsource CPU manufacturing

Activist hedge fund advises Intel to outsource manufacturing of CPUs

Andrew Cunningham

The hedge fund Activist, Third Point, has taken a nearly $ 1 billion stake in Intel and called on the chipmaker to consider manufacturing and question a key part of its strategy.

The $ 15 billion-asset firm managed by Daniel Loeb made a number of demands in a letter sent to Intel’s chairman Omar Ishrak on Tuesday and viewed by the Financial Times.

In the letter, Loeb said that Intel “once” was the gold standard for innovative microprocessor manufacturing, but that it was lagging behind competitors in East Asia, such as TSMC and Samsung.

His intervention comes as Intel faces a critical decision about its future as a leading semiconductor manufacturer – a position it has held for decades, and the source of its dominance in the PC era.

Bob Swan, its CEO, has indicated that early next year he will decide whether to outsource a significant portion of its most advanced manufacturing, or even move completely out of top production, after a series of slips.

The company unveiled in July that it has hit a new obstacle to try to move to the next generation of manufacturing technology, where the functions on chips are reduced to just 7 nanometers.

It has yielded a series of faulty assemblies that have helped advance the lead produced by TSMC, the Taiwanese chip company that manufactures semiconductors on behalf of many of the world’s largest chip designers, including Nvidia, Qualcomm and AMD.

Intel has lost about $ 60 billion in market value in the past year, Loeb pointed out when it focused on the disc maker’s corporate governance.

“We cannot see how the boards that led Intel’s decline could allow management to frustrate the company’s leading market position, while at the same time rewarding them with excessive remuneration packages,” Loeb wrote.

The hedge fund said it was particularly concerned about the loss of talent at Intel, saying the company had lost many of its best chip designers, while those who remained were “increasingly demoralized.”

Loeb said Intel should hire investment advisers to determine if the company should design and manufacture chips, as well as sell failed acquisitions, although the letter does not point to specific examples.

“Intel welcomes input from all investors regarding improved shareholder value,” the company said in a statement. “In spirit, we look forward to addressing with Third Point their ideas regarding that goal.”

Ending its efforts to physically make the most advanced semiconductors will be a turning point in Intel’s fortunes, while also leaving the US without a leading chip maker.

Mr. Loeb calls his problems a ‘critical issue’ that could have a broader impact on US security if America is forced to apply to businesses in ‘geopolitically unstable’ regions ‘everything from computers to data centers to critical infrastructure and more’. ”

Intel shares rose more than 5 percent on the news of Loeb’s letter, first reported by Reuters.