After a difficult year,
Officials got one last surprise in 2020. This came as a sharp word from active investor Daniel Loeb last week.
Loeb, CEO of hedge fund Third Point, once stressed the need for change as a leading chipmaker. And he answered a number of questions on Wall Street and has been asking in Silicon Valley for over a year now: How once did major Intel (ticker: INTC) so clearly lose its way?
Loeb wrote to Intel chairman Omar Isharaq, “We can’t think of how the board that presides over Intel’s collapse can steer management away from the company’s leading market position.” “Stakeholders will no longer tolerate such a clear duty.”
Intel shares rose 5% according to Loeb’s letter and a Reuters report that Third Point had a $ 1 billion stake in the company. The stock was down 17% in 2020 for the PHLX Semiconductor Index by 51%.
For years, the case for investment around Intel has been that its real value lies in a fully integrated approach to chip making – it designs and manufactures chips, while rival advanced micro devices (
(NVDA) rely on third party manufacturers viz
Taiwan Semiconductor Manufacturing
But that case assumed that Intel could design and build equally well. Several years of delay have reduced that claim.
“The loss of manufacturing leadership and other misconceptions has allowed many semiconductor competitors to take advantage of TSMC
Technology advances the process and gains significant market share at Intel’s expense.
As Baron’s Celebrated in November, Intel’s woes can be related to a decision about 15 years ago, when it opted not to make processors for it
(AAPL) iPhone. While the mobile market was small at the time, it has proved to be a big volume play for Taiwan Semi and
They were given the scale and practice of making advanced, energy-efficient chips.
Read also:Intel has fallen behind rivals and the rest of Tech. Why its stock may rise again.
The desire to boost energy efficiency was a big reason Apple designed its own Mac chips, which debuted in November for the new model. These days, consumers are focused on longer battery life because they are on raw performance, and Intel is not able to keep up. Taiwan is at least a year ahead of Intel on major chip making technology.
Intel reacted to Loeb’s letter with a statement saying it welcomed input from investors to increase shareholder value, adding that “we want to engage with Third Point LLC on their views toward that goal Look forward. “
Third Point declined to comment beyond its letter, but the firm clarified where it sees the problem: “Of particular concern is Intel’s human capital management problem and the absence of a clear plan to address it,” Loeb Wrote
In June, high-ranking chip designer Jim Keller left Intel, citing personal reasons. The following month, Intel delayed its next-generation chip until the end of 2022 and announced a shake-up in its engineering team, including the departure of chief engineer Venkat Renduchintala. CEO Bob Swan reorganized the rest of the company’s technology group to report it.
Swan was not the exclusive Intel CEO when he was promoted to the top role in January 2019. He comes from a financial background, having served as chief financial officer of eBay and as a partner in investment firm General Atlantic.
The lack of technical expertise is even more pronounced on Intel’s board of directors, which lacks members with chip-making experience. Isharaq, who joined the board in 2017 and became chairman in early 2020, is a long-time medical-technology executive. It is worth pondering how a more chip-focused board would have guided the company in recent years.
I asked Hans about the makeup of the board in a November interview: “I couldn’t feel better about the diverse makeup our board represented,” he told me, “so we’re going to be able to assess Different thinking around the table. ” Opportunities and challenges have to be faced. “
Loeb’s letter was unclear in terms of next steps, but the activist noted the possibility of presenting the candidates to the board at Intel’s next annual meeting.
Ultimately, Loeb’s interest ties into the logic made in our November story: Intel remains a chip-making heavyweight with considerable inherent value.
Although most of Wall Street’s intel wants Intel to focus exclusively on chip design, it does not have to become a fully fableless chip operation like AMD. Talking about outsourcing, the company has already shown flexibility. In late 2019, an Intel executive stated that “20% to 25% of the wafer volume is something we get from the company.”
More flexibility will help. New Street Research analyst Pierre Ferragu wrote last week, “Intel may leverage TSMC (say 25% to 50% of its needs) to restore competition to its chips.” “It will also create competition for internal construction, which can only do well and help repair Intel’s broken operations.”
While this has been a difficult year for Intel, the good news is that in 2021 it will not take much time for executives to hold expectations – just a willingness to boast on the one hand and ask for some help.
Write Max A. Cherney at [email protected]