Intel shares jumped almost 5% on Tuesday after Reuters reported that activist hedge fund Third Point LLC has urged the chipmaker to explore strategic avenues, including separating its chip design from its semiconductor production operations.
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In a letter sent to the company’s chairman and seen by Reuters, Third Point head Daniel Loeb has asked Intel (INTC) to take immediate action to boost its position as a major provider of processor chips for PCs and data centers. The New York-based fund has built an almost $1 billion stake in Intel, according to Reuters.
“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,” the chipmaker said in an official statement following the Reuters report.
According to Loeb’s letter, Intel’s most pressing task was related to its “human capital management issue,” as many of its talented chip designers have left, “demoralized by the status quo.”
In addition, Loeb lamented that Intel has lost its position in microprocessor manufacturing to Taiwan Semiconductor Manufacturing Co and South Korea’s Samsung Electronics Co Ltd, he wrote in the letter cited by Reuters. Intel is also losing market share in its core PC and data center markets to Advanced Micro Devices Inc, Loeb noted. Nvidia Corp. is dominating computational models used in artificial intelligence applications, while Intel has been largely absent in this nascent market, according to the letter.
“Without immediate change at Intel, we fear that America’s access to leading-edge semiconductor supply will erode, forcing the US 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.
Loeb demanded from Intel to hire an investment adviser to evaluate strategic alternatives, including the potential divestment of failed acquisitions, according to the letter.
Furthermore, Loeb said in the letter that Third Point would submit nominees for election to Intel’s board at its next annual meeting, should it sense “a reluctance to work together to address the concerns” it raised.
Shares in California-based Intel, which is one of the few remaining companies in the world that both designs and manufactures its own chips, have dropped almost 18% this year. Meanwhile, the average analyst price target of $52.12 implies 5.5% upside potential in the next 12 months.
Following the news report, Rosenblatt analyst Hans Mosesmann maintained a Sell rating on the stock as he argues that the strategic alternatives that the company appears ready to explore will not necessarily help much in regaining its competitive edge.
“So, would any strategic alternative that Intel could pursue change the competitive positioning for the better for the company in the next 2-years? Unlikely given that the hybrid manufacturing strategy is already expected by the Street,” Mosesmann wrote in a note to investors. “If other strategic alternatives are on the table, besides manufacturing, any customer engaged strategically with Intel today should be worried.”
Overall, the rest of the Street is sidelined on the stock. The Hold analyst consensus breaks down into 14 Holds, 5 Sells and 5 Buys. (See Intel stock analysis on TipRanks).
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