Activist investor pushes Intel to explore “strategic alternatives”

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Hedge fund Third Point Management warns Intel that it may need to fundamentally change its structure and operations.

Reuters has reported that Intel is coming under pressure to look at deal options to keep the company competitive. An activist investor group is warning about the company’s position in the increasingly competitive chip design and production markets.

Third Point Chief Executive Daniel Loeb wrote a letter to Intel Chairman Omar Ishrak calling for immediate action. Loeb wants Intel to boost it’s position as a major provider of processor chips for PCs and data centers. The New York-based fund has amassed a nearly $1 billion stake in Intel, according to Reuters.

In the letter, Loeb points out two competitive challenges. First, Intel is losing market share in its core PC and data center markets to Advanced Micro Devices (AMD). Second, NVIDIA is dominating computational models used in artificial intelligence applications. This is happening while Intel has been largely absent in this nascent market.

Loeb points out that Intel has also lost its number one position in microprocessor manufacturing. The company has ceded ground to Taiwan Semiconductor Manufacturing Co and South Korea’s Samsung Electronics Co.

Framing the problem in nationalist terms

“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.

Intel was quick to respond to the issues raised by Third Point. In a short statement, the company said, “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.”

Intel needs to “evaluate strategic alternatives” including spin-offs

Loeb asked Intel to retain an investment adviser to evaluate strategic alternatives. These include whether it should remain an integrated device manufacturer and the potential divestment of failed acquisitions.

Third Point believes that Intel should consider separating its chip design from its semiconductor fabrication plant manufacturing operations. This could include a joint venture in manufacturing, according to the Reuter report.

Tip: Why the acquisition of ARM by Nvidia should be prohibited