Intel (INTC) Gains After Being Targeted by Activist Dan Loeb's Third Point

Shares of Intel (NASDAQ: INTC) surged 4.5% Tuesday after Third Point LLC's Dan Loeb sent a letter to Chairman Dr. Omar Ishrak discussing a "significant stake" and urging the company to evaluate strategic alternatives, "including whether Intel should remain an integrated device manufacturer and the potential divestment of certain failed acquisitions."

Loeb notes that the stock of Intel has "dramatically underperformed those of its peers on a one, three, and five-year basis", losing over $60 billion in market cap in the past year alone.

The hedge fund manager said they would like to discuss "concrete steps" the company can take to address its challenges.

He notes that once the gold standard for innovative microprocessor manufacturing, the company has lost its leading position to TSMC in Taiwan and Samsung in South Korea.

"Previously reliably able to progress its process technology every 2-3 years, Intel has been stuck at its 14-nanometer node since 2013, while TSMC and Samsung both transitioned to 5-nanometer this year and are developing more advanced process geometries," Loeb wrote. "Intel’s plan to roll out its 7-nanometer node late 2022 or early 2023 will place the Company several years behind its Asian peers for at least the first half of this decade. This lag in advanced semiconductor manufacturing is a vulnerability that must be corrected."

Loeb further discussed how AMD (NYSE: AMD) has been taking Intel's market share in the core PC and data center CPU markets. Meanwhile, NVIDIA's (NASDAQ: NVDA) GPUs have dominated the nascent market for training complex computational models used in AI applications while Intel has been largely absent in that market.

One important distinction Loeb highlighted is that while U.S.-based, these semiconductor companies operate no fabs themselves and leverage manufacturing in Asia to produce their products. He said this raises a major concern - "the vital role of Intel’s products and services to America’s national security."

However, without immediate change at Intel, Loeb said they 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 also noted the human capital management problem at Intel. He highlights that the company has lost many of its most inspiring and talented chip designers and leaders and the firm's sources indicate that those still there "are becoming increasingly demoralized by the status quo."

With large customers like Apple, Microsoft, and Amazon developing their own in-house silicon solutions, the fund manager said Intel must be able to offer "new independent solutions to retain those customers rather than have them send their manufacturing away."

Reuters, which first reported the stake, suggested that Third Point's current stake is around $1 billion. In the letter, the firm said they are filing for Hart-Scott-Rodino approval with the Federal Trade Commission to acquire incremental common shares and engage more actively with the Company.

Further, the firm said they preserve the option to submit nominees for election to the Board at the 2021 Annual Meeting.

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