A prominent activist investor has called on Intel Corp. to weigh “strategic alternatives” that could include separating its chip design and production operations, according to a Reuters report from this morning.

The investor, hedge fund Third Point Management, reportedly outlined its position in a letter sent to Intel today. Third Point, which has a track record of persuading companies to implement business changes, is said to have bought nearly $1 billion worth of Intel shares in the run-up to the move.

The hedge fund’s letter was penned by Chief Executive Officer Daniel Loeb and lists a number of issues it sees facing Intel. The document also proposes what the company should do to address them. 

According to Reuters, Loeb pointed out that Intel is losing ground to Advanced Micro Devices Inc. in the data center and personal computer processor markets. AMD has grown its market share from the single-digit to the double-digit range in both segments over the last few years by enhancing its chip lineup. Another rival, Nvidia Corp., leads the market for artificial intelligence chips, where the Third Point letter notes Intel has a fairly limited presence.

A third area the letter discusses is chip manufacturing. Intel’s processor fabrication operation, Loeb reportedly wrote, has fallen behind the manufacturing capabilities of TSMC Co. and Samsung Electronics Co. Ltd. Intel is currently working to upgrade its facilities to the seven-nanometer process while TSMC and Samsung are already making chips based on newer five-nanometer technology. 

Third Point’s letter suggests that Intel hire an investment adviser to help explore strategic alternatives. The proposed alternatives include “separating” its chip design and chip manufacturing operations, according to today’s report. 

The separation Third Point has in mind could reportedly include a scenario where Intel turns its chip manufacturing operation into a joint venture. Reuters’ sources didn’t go into further detail. A joint venture is an arrangement in which at least two parties jointly own a business, which would suggest the hedge fund wants Intel to consider selling a stake in its network of chip fabrication facilities to an external investor.

“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,” Third Point’s letter reportedly states.

According to the hedge fund, an even more urgent problem for Intel’s leadership team is its “human capital management issue.” Loeb reportedly stated in the latter that many of Intel’s chip designers have left the company because they became “demoralized by the status quo.” The past year also saw the departure of Venkata Renduchintala, a longtime Intel executive who was most recently in charge of chip production and other key operations in his role as chief engineering officer.

Intel said a few months ago that it expects to start mass-producing seven-nanometer chips in late 2022 or early 2023. The company’s first seven-nanometer server processor line, codenamed Granite Rapids, is set to hit the market sometime in 2023. 

Photo: Intel