Intel Urged to Take 'Immediate Action'

Amid Threats From Apple Silicon and

AMD
Hartley Charlton • Wednesday December 30, 2020 8:59 am PST

Activist hedge fund Third Point LLC is pushing for a major shakeup at Intel in
response to threats from Apple, Microsoft, Amazon, AMD, TSMC, and Samsung
(via Reuters).

Intel's in-house manufacturing capabilities have struggled to provide the chips

its clients want in recent years, with many of its offerings lagging behind its rivals
in terms of speed and power consumption. While 2020 has afforded Intel a boost
in the form of surging laptop sales, the company has failed to capitalize on
demand more broadly for semiconductors and is facing the loss of major clients
such as Apple, who have begun to transition from Intel chips to custom silicon.

In a letter to Intel's chairman, Omar Ishrak, seen by Reuters, Third Point calls for
"immediate action" to restructure and explore alternative business strategies.
Firstly, Third Point requests that Intel urgently addresses its "human capital
management issue." Many of Intel's talented chip designers have reportedly fled
the company due to being "demoralized with the status quo," which has stifled
innovation.

The letter explicitly highlighted that Intel has lost its prime position in
microprocessor manufacturing to TSMC and Samsung Electronics, and is losing
key market share in its core PC and data center markets to AMD. The company is
also accused of being largely absent in the emerging market of artificial
intelligence. "Without immediate change at Intel," the letter cautioned, "we fear
that America's access to leading-edge semiconductor supply will erode."

Third Point encouraged Intel to consider separating its chip design and
manufacturing divisions, and instead seek a joint venture in manufacturing. It
was also urged to divest its failed acquisitions, such as the $16.7 billion purchase
of programmable chip maker Altera in 2015.

Following Apple, Intel customers Microsoft and Amazon are expected to cease
using its chips, resorting to their own custom silicon instead. Third Point
expressed concern that the custom silicon designed by these companies is sent
to be manufactured by companies in East Asia. As such, it suggests that Intel
must offer new solutions to retain its major clients as customers rather than have
them send their manufacturing away.

Splitting up design and manufacturing operations could help Intel address some
of the threats it is facing. Tapping external vendors to manufacture its most
advanced processors, a step Intel executives are said to be extremely resistant
toward, could help to lower costs. Furthermore, opening up Intel's own
manufacturing capability to make non-Intel processors could allow it to produce
the custom silicon chips increasingly wanted by its major clients.

Intel has reportedly been slow to respond to investors' concerns. The letter
threatened that if Third Point senses "a reluctance to work together to address
the concerns," it will submit nominees for election to Intel's board at its next
annual meeting. Third Point is said to hold a $1 billion stake in Intel, affording it a
position where it can push for change at the company.

A statement from Intel responded to the intervention, saying "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."