Activist investor Dan Loeb has built a position in Intel Corp and is urging the company to explore strategic alternatives, including a possible breakup of the chipmaker and the sale of assets.
Loeb’s fund, Third Point LLC, has “built a significant stake” in Intel and plans to push for changes, including potentially nominating directors, he said on Tuesday in a letter to Intel chairman Omar Ishrak.
The company has dramatically underperformed its peers in the past five years, including losing more than US$60 billion in market value this year alone, Loeb said.
“We cannot fathom how the boards who presided over Intel’s decline could have permitted management to fritter away the company’s leading market position while simultaneously rewarding them handsomely with extravagant compensation package,” Loeb said in the letter, a copy of which was obtained by Bloomberg. “Stakeholders will no longer tolerate such apparent abdications of duty.”
Intel said in a statement that it welcomed input from all investors to create shareholder value and looked forward to engaging with Third Point toward that goal.
Loeb also said he expected the discussions to be productive, but reserved the right to nominate directors should he sense a “reluctance” to address his concerns.
Intel is in the middle of its worst crisis in at least a decade. The Santa Clara, California-based company has been the largest chipmaker for most of the past 30 years by combining the best designs with cutting-edge factories.
Most other US chip companies shut or sold plants, and tapped other firms to make the components.
Intel held out, arguing that doing both improved each side of its operation and created better semiconductors.
That strategy is being questioned now as the company’s manufacturing capabilities fall behind the new industry leader, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電).
Intel’s factories are struggling to keep up with the latest 7-nanometer production process, while TSMC has already moved beyond that to an even more advanced version.
Intel chief executive officer Bob Swan is considering outsourcing some production and has said he would make a decision next year.
That would be a radical change for the company and even his suggestion caused the stock to plunge earlier this year.
Loeb said that Intel should hire an investment bank to evaluate strategic alternatives, including whether it should remain an integrated device manufacturer and to explore the divestment of “certain failed acquisitions.”
He said that there were other issues he would like to discuss privately, and planned to file with regulators to allow for Third Point to continue to buy shares in the company and engage more actively with it.
Intel shares on Tuesday rose more than 5 percent to US$49.50 in New York, giving the company a market value of about US$200 billion.
“Perhaps the letter will act as a push, but the company is (supposedly) currently engaged in exactly this sort of exercise,” Sanford C. Bernstein analyst Stacy Rasgon wrote in a note to clients. “We already know Intel is in the process of considering alternatives in the wake of their manufacturing issues (we are supposed to get a plan in January) though so far recent public commentary has been more suggestive of ‘evolutionary’ approaches.”
Loeb wrote in the letter that Intel has fallen behind the technological advances of its competitors and is at further risk now that many of its customers, including Apple Inc, Microsoft Corp and Amazon.com Inc, are developing their own in-house chips.
Intel must figure out a way to serve its competitors as customers, such Netflix Inc has by using Amazon’s AWS for cloud services, for example, he said.
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