Activist fund wants to help Intel fix its ‘rough patches’

Written by: Jayson Derrick
December 30, 2020
  • Shares of Intel are down around 18% in 2020 while AMD's stock is up nearly 100%.
  • Activist investor Dan Loeb bought a 0.5% stake in Intel.
  • He wants to help Intel fix its "rough patches."

Activist investor Dan Loeb said in an open letter to Intel Corporation (NASDAQ: INTC) on Tuesday he boasts two decades’ worth of experience helping companies navigate through “rough patches” and he has some ideas on how the chipmaker can proceed moving forward.

Loeb owns $1B worth of shares

Loeb’s hedge fund accumulated a roughly $1 billion stake in Intel despite the stock underperforming its semiconductor peers on a one-year, three-year, and five-year basis. But the activist investor’s stake that translates to a stake of roughly 0.5% in Intel is based on expectations for management to solve problems with “the utmost urgency,” Loeb said in the letter.

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Intel was once the “gold standard” for microprocessor manufacturing but over the years it has lost its leadership position to rivals like Taiwan Semiconductor Mfg. Co. (NYSE: TSM), he wrote. Most notably, Intel has been “stuck” with producing a 14-nanometer node since 2013 while a 7-nanometer note launch in late 2022 or 2023 means Intel will be “several years behind” its competitors.

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Stakeholders can ‘no longer tolerate’ Intel’s decisions

It is difficult to imagine how Intel’s board of directors could sit by idly and watch the company’s market share fall over the years while at the same time “handsomely” rewarding investors with “extravagant compensation packages.”

“Stakeholders will no longer tolerate such apparent abdications of duty,” Loeb wrote.

Meanwhile, Intel allowed its top talent to leave the company for its competitors while Loeb’s sources are telling him that remaining workers are “increasingly demoralized.” Making sure the company doesn’t continue losing its most valuable assets should be the board of director’s “most urgent task.”

Loeb wrote Intel should consider evaluating strategic alternatives, including exploring if the company is better off as an integrated device manufacturer or note. Other suggestions include taking a second look at recent acquisitions and divest deals that haven’t played out as expected. 

Commenting on Loeb’s letter, Morgan Stanley analyst Joseph Moore noted that Intel does have a reputation of being “objectively open to feedback” but the company’s challenges in 2021 “still look substantial.” 

How bad is Intel’s stock?

Shares of Intel are down around 18% in 2020 despite Loeb’s letter resulting in a $3 per share gain on Tuesday. Stacked against nearly every comparison, Intel’s stock is far behind — especially the PHLX Semiconductor Index benchmark that is up nearly 50% in 2020.

Shares of rival Advanced Micro Devices, Inc. (NASDAQ: AMD), a company highlighted in Loeb’s letter as benefiting from the “visionary leadership” of CEO Dr. Lisa Su is up around 100% in 2020 while Taiwan Semiconductor has seen its shares gain around 85% this year.