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Activist Hedge Fund Calls for Intel to Spin Off Fabs

Intel CEO Bob Swan
(Image credit: Tom's Hardware)

As reported by Reuters, activist hedge fund Third Point, which reportedly owns a $1 billion stake in Intel, has penned a letter to Intel Chairman Omar Ishrak asking the company to explore "strategic alternatives," like spinning off its fabs and/or divesting itself of unsuccessful acquisitions, to address the company's recent market share losses. The hedge fund also cites an ongoing exodus of Intel's top chip designers, saying the company has a "human capital management issue" and that chip architects have been "demoralized by the status quo." 

The letter cites several of Intel's recent missteps, including losing the chip manufacturing lead to Taiwan-based TSMC and Korean chipmaker Samsung, which comes as a result of the company's delayed 10nm and 7nm process nodes. The hedge fund also notes that several of Intel's long-term customers, such as Apple, Microsoft, and Amazon, are now designing their own chips due to Intel's stagnation, eroding its customer base (particularly in the high-margin server market). The letter also cites Intel's share losses to AMD on the CPU side of the business and Nvidia's dominating position in AI workloads as signs that Intel needs to take drastic measures. 

The letter calls for Intel to retain an investment advisor to explore strategic alternatives, such as spinning off certain unsuccessful acquisitions or separating its fabs from its chip design operations. The latter would require spinning off the company's fabs into a separate business, possibly a joint venture, much like AMD did when it separated from GlobalFoundries.  

Intel posted a response to its investor relations site, stating: 

"Intel Corporation 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 prospect of Intel spinning off its fabs entirely seems unlikely. The company's native chip production capacity has helped it to largely avoid the shortages we've seen with other chipmakers, like AMD and Nvidia, in the wake of the global pandemic. Intel's tightly-controlled supply chains are also a strength that has helped it combat the waves of shortages that have impacted all facets of semiconductor production, such as secondary componentry like substrates and power ICs. 

In the past, Intel tried to operate as a contract chip manufacturer through its Intel Custom Foundry (ICF) initiative, which was largely a failure (in part due to 10nm delays, and also because Intel purchased Altera, it's largest ICF customer). That means Intel's most likely path to separating its chip design and fabrication efforts would come as some type of joint venture. Still, it's unclear if Third Point has made any significant suggestions to establish a framework for such a separation.  

Intel has already signaled an increased willingness to embrace third-party foundries to access their leading-edge nodes, thus expanding its existing use of third-party silicon to its core logic components (a first). However, that isn't a long-term solution to the company's woes: Intel has more than twice the semiconductor output of TSMC, which is largely thought to be Intel's presumptive partner for third-party chips. Given that TSMC is already capacity constrained, it obviously wouldn't have enough output to satisfy Intel's incredible volume without making massive long-term investments of its own. 

Those types of investments seem unlikely, given that Intel's business would likely be short-lived. Intel CEO Bob Swan recently said that even though Intel will now engage third-party foundries as strategic partners, it will continue to develop its own leading-edge nodes and has deployed a "fix" for its own 7nm node (though that fix has led to an untenable delay). 

Swan says that Intel will decide if it will turn to outside foundries as a stop-gap or invest in its own 7nm equipment, and also where and what to outsource, by "really early next year." However, Intel has taken crushing losses this year: Its stock is down 23% this year and is one of the worst-performing on the Dow. Investors are obviously losing patience – Intel's stock is up 7% on the news of the letter from the activist hedge fund. 

  • digitalgriffin
    As I have said elsewhere:

    Intel's lead for years was based on the fact they had leading edge nodes. As a whole the x86 architecture has the most complicated fetch decode stage mostly due to legacy support, of any architecture. This creates a lot of support transistors which could be budgeted elsewhere.

    Intel is supposed to be changing their culture. But it takes years to right a ship. They are burdened the way General Motors was during the 2007 market crash. It may take them collapsing and losing burdens before they can come back.

    If intel cannot pass the competition with a leading node, then at best they will trade blows with the competition.

    And this means more competition. That's a good thing. I look forward to zen 3 prices coming down when rocket lake regains the crown.
    Reply
  • TechLurker
    Here's a wild idea that would never happen; doing a full joint R&D effort on next-gen nodes with GloFo. GloFo has or had the node knowledge, but not the funds or foundry space (hence they gave up on 7nm despite early prototypes proving slightly superior to TSMC's 7nm). Intel solves some brain drain with GloFo, and GloFo can piggyback on some of Intel's leading/bleeding edge fabs for providing leading edge nodes to their own customers seeking an alternative to Samsung and TSMC, and use the cash to help upgrade or build at least one new fab for the modern node as well. It'd be a bit humorous to see some AMD parts fabbed at an Intel Fab via a GloFo arrangement, but Intel benefits from some of that AMD cash fabbing a few chips for them too.
    Reply
  • Hamsterman10
    digitalgriffin said:
    As I have said elsewhere:

    Intel's lead for years was based on the fact they had leading edge nodes. As a whole the x86 architecture has the most complicated fetch decode stage mostly due to legacy support, of any architecture. This creates a lot of support transistors which could be budgeted elsewhere.

    Intel is supposed to be changing their culture. But it takes years to right a ship. They are burdened the way General Motors was during the 2007 market crash. It may take them collapsing and losing burdens before they can come back.

    If intel cannot pass the competition with a leading node, then at best they will trade blows with the competition.

    And this means more competition. That's a good thing. I look forward to zen 3 prices coming down when rocket lake regains the crown.
    Pretty sure the biggest problem with Intel is its "new and improved" culture of inclusivity. I'm not saying diversity is bad, but firing, letting go, forcing an exodus, or whatever other terms you want to use against all of your senior process engineers and chip designers, who were mostly older white men, was idiotic. It was an HR and Krzanich ideal, and the best people who could have fixed the process issues at 10nm and now 7nm were all gone! And guess where most of them went: Apple. Gee, why is Apple the first company to ship a TSMC-based 5nm chip? That could have / should have been Intel!

    Bob Swan has done nothing to reverse this trend that I've seen, and so the problems continue. Krzanich made these moves when 10nm was presumed to be on track, despite the 14nm delays. Well, Intel most certainly wasn't on track and now it's falling even further behind. We still haven't seen a single high-end 10nm / SuperFIN part out of Intel, only mobile Ice Lake and Tiger Lake topping out at 4-core designs. There are supposed to be 8-core Tiger Lake-H variants coming, but will they be enough? Probably for high-end laptops, but apparently Intel isn't even thinking of doing them as desktop chips.

    Which suggests even SuperFIN isn't doing all that great with larger chip yields. The whole Rocket Lake thing is just mind boggling. If SuperFIN is so great, why in hell are we getting another 14nm part? What is this, 14nm+++++? I know, Intel has stopped using plus signs, because it was becoming laughable. What's even crazier is that Rocket Lake may still compete on desktop for up to 8-core PCs based on current leaks. Not on power and efficiency, but on performance at least. I'd still much rather have a proper Tiger Lake 8-core desktop design.
    Reply
  • PCMan75
    Hamsterman10 said:
    Pretty sure the biggest problem with Intel is its "new and improved" culture of inclusivity. I'm not saying diversity is bad, but firing, letting go, forcing an exodus, or whatever other terms you want to use against all of your senior process engineers and chip designers, who were mostly older white men, was idiotic. It was an HR and Krzanich ideal, and the best people who could have fixed the process issues at 10nm and now 7nm were all gone! And guess where most of them went: Apple. Gee, why is Apple the first company to ship a TSMC-based 5nm chip? That could have / should have been Intel!

    Bob Swan has done nothing to reverse this trend that I've seen, and so the problems continue. Krzanich made these moves when 10nm was presumed to be on track, despite the 14nm delays. Well, Intel most certainly wasn't on track and now it's falling even further behind. We still haven't seen a single high-end 10nm / SuperFIN part out of Intel, only mobile Ice Lake and Tiger Lake topping out at 4-core designs. There are supposed to be 8-core Tiger Lake-H variants coming, but will they be enough? Probably for high-end laptops, but apparently Intel isn't even thinking of doing them as desktop chips.

    Which suggests even SuperFIN isn't doing all that great with larger chip yields. The whole Rocket Lake thing is just mind boggling. If SuperFIN is so great, why in hell are we getting another 14nm part? What is this, 14nm+++++? I know, Intel has stopped using plus signs, because it was becoming laughable. What's even crazier is that Rocket Lake may still compete on desktop for up to 8-core PCs based on current leaks. Not on power and efficiency, but on performance at least. I'd still much rather have a proper Tiger Lake 8-core desktop design.
    I'm a contract software developer in Silicon Valley. Over the years I worked for some of well known tech companies in the area - but never for Intel. Why? Because whenever there're openings (at Intel) for type of work I do - rates were just ridiculously low. This is another indication of how Intel values people that work for it.
    Reply
  • jimmysmitty
    PCMan75 said:
    I'm a contract software developer in Silicon Valley. Over the years I worked for some of well known tech companies in the area - but never for Intel. Why? Because whenever there're openings (at Intel) for type of work I do - rates were just ridiculously low. This is another indication of how Intel values people that work for it.

    I can easily contradict you. A friend of mine who did the Intel program at Pima Community College in 2004/2005 got a job there making $60K/year (was a lot back then) on a 2 year degree. I saw him again in 2015 and they were paying for him to finish his 4 year and were planning on doubling his salary.

    I have seen a lot of job postings from Intel and most pay decent. There are far worse.

    As for the investors, I think its always fun to see people with little knowledge of the products themselves give this kind of advice. The best thing Intel has is that they are all in house. This allows for better quality control of the end product and less issues with FAB capacity. While they haven't seen it yet, TSMC is going to run into it if they have enough high volume customers. If AMD ever gets to the same market share as Intel has in desktop and server/hpc markets I doubt TSMC will be able to fill those orders along with GPU and other companies easily enough.

    Intel does need some changes though. They need to focus on keeping the best employees to keep the ship moving forward. I would rather seem them compete well with AMD than flounder. If they do its a loss for us as AMD will, as they have before, become complacent and charge more. Hell they already did increase prices for the same core count. If they continue to dominate I wouldn;t be srprised if they start to push more and more to squeak out every penny they can. They are a shareholder owned company after all and those are the people they have to satisfy the most.
    Reply
  • Kamen Rider Blade
    Hamsterman10 said:
    Which suggests even SuperFIN isn't doing all that great with larger chip yields. The whole Rocket Lake thing is just mind boggling. If SuperFIN is so great, why in hell are we getting another 14nm part? What is this, 14nm+++++? I know, Intel has stopped using plus signs, because it was becoming laughable. What's even crazier is that Rocket Lake may still compete on desktop for up to 8-core PCs based on current leaks. Not on power and efficiency, but on performance at least. I'd still much rather have a proper Tiger Lake 8-core desktop design.
    In all Fairness to Intel:
    RocketLake will be on 14nm++++ (4 Pluses)
    AlderLake is going to be on 10nm+++ (3 Pluses)The bigger problem is that Intel is INSISTING on RocketLake including AVX-512 which eats up ALOT of Transistor Real Estate which limits RocketLake to 8 Cores Maximum, unlike CometLake which had 10 Cores as it's Top SKU. If they insist on wasting Transistor budget on AVX-512, that's going to be shooting themselves in the foot.

    https://www.tomshardware.com/news/intel-12th-generation-alder-lake-s-cpu-multi-core-performance-ryzen-5-3600xAnd AlderLake going Hybrid with 8 REAL Cores & 8 Atom Cores is going to make it hard for Intel to even compete against the Ryzen 5 3600X in Multi-Core.
    WTF is Intel Smoking? That's some Horrible Decision making to go Hybrid on DeskTop.
    ___- Intel's 14nm History -
    NOTE: 14nm was two years late

    14nm:
    2014: BroadWell = https://en.wikipedia.org/wiki/Broadwell_(microarchitecture)2015: SkyLake = https://en.wikipedia.org/wiki/Skylake_(microarchitecture)
    14nm+:
    2016: KabyLake = https://en.wikipedia.org/wiki/Kaby_Lake
    14nm++:
    2017: CoffeeLake = https://en.wikipedia.org/wiki/Coffee_Lake2018: WhiskeyLake = https://en.wikipedia.org/wiki/Whiskey_Lake_(microprocessor)
    14nm+++:
    2019: CometLake = https://en.wikipedia.org/wiki/Comet_Lake_(microprocessor)
    14nm++++:
    2021: RocketLake = https://en.wikipedia.org/wiki/Rocket_Lake¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
    ___- Intel's 10nm History -
    https://www.anandtech.com/show/16107/what-products-use-intel-10nm-superfin-demystified/NOTE: Originally, the '10nm' node was first announced in 2014, to be released in 2016. While officially 'shipping for revenue' by 31 December 2017

    10nm:
    2018: CanonLake = https://en.wikipedia.org/wiki/Cannon_Lake_(microarchitecture)
    10nm+:
    2019: IceLake = https://en.wikipedia.org/wiki/Ice_Lake_(microprocessor) <- Any sort of real volume, even then, there has been shortages
    Ice Lake-SP
    Lakefield (compute)
    Snow Ridge
    Elkhart Lake

    10nm++: AKA "10 nm SuperFin"
    2020: TigerLake = https://en.wikipedia.org/wiki/Tiger_Lake_(microprocessor)SG1
    DG1

    10nm+++: AKA "10 nm Enhanced SuperFin"
    2021: Alder Lake = https://en.wikipedia.org/wiki/Alder_Lake_(microprocessor)First Xe-HP GPU
    Sapphire Rapids
    First Fovero's based Desktop CPU
    First BIG.little architecture implementation
    ¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
    Reply
  • digitalgriffin
    jimmysmitty said:
    I can easily contradict you. A friend of mine who did the Intel program at Pima Community College in 2004/2005 got a job there making $60K/year (was a lot back then) on a 2 year degree. I saw him again in 2015 and they were paying for him to finish his 4 year and were planning on doubling his salary.

    I have seen a lot of job postings from Intel and most pay decent. There are far worse.

    As for the investors, I think its always fun to see people with little knowledge of the products themselves give this kind of advice. The best thing Intel has is that they are all in house. This allows for better quality control of the end product and less issues with FAB capacity. While they haven't seen it yet, TSMC is going to run into it if they have enough high volume customers. If AMD ever gets to the same market share as Intel has in desktop and server/hpc markets I doubt TSMC will be able to fill those orders along with GPU and other companies easily enough.

    Intel does need some changes though. They need to focus on keeping the best employees to keep the ship moving forward. I would rather seem them compete well with AMD than flounder. If they do its a loss for us as AMD will, as they have before, become complacent and charge more. Hell they already did increase prices for the same core count. If they continue to dominate I wouldn;t be srprised if they start to push more and more to squeak out every penny they can. They are a shareholder owned company after all and those are the people they have to satisfy the most.

    In Cali that's nothing. Not to brag, but I made significantly more than that in the boondox, east coast in 2004/2005. That is peanuts pay even back then.

    $120K is decent today. But again, not in Cali. Cost of living, and quality of living is obscenely bad. Weather is great though.
    Reply
  • King_V
    digitalgriffin said:
    In Cali that's nothing. Not to brag, but I made significantly more than that in the boondox, east coast in 2004/2005. That is peanuts pay even back then.

    $120K is decent today. But again, not in Cali. Cost of living, and quality of living is obscenely bad. Weather is great though.

    I can't speak to IT work in Arizona, but as a software developer, I was making $60K in NJ... back in 2001. And other companies were picking off people left and right from us with higher salary offers. I didn't leave because I really liked my job, and told colleagues at the time "It would take more than just a few thousand dollars more to get me to go elsewhere."

    $60K from a company like Intel in 2004/2005 was Intel being cheap.

    Of course, after the tech meltdown in 2001, during the "jobless recovery" I believe CEO Craig Barrett said something to the effect of there not being enough qualified engineers in the US, and that's why they desperately needed so many more H-1B employees. The reality was that there were legions of us on the unemployment line. Just not enough of us willing to take below entry level wages, or willing to work in the US making a salary that would be considered luxurious in India, but not even cover rent or property tax several US states.

    That was the Intel mentality.
    Reply
  • jkflipflop98
    Intel spinning off the fabs into another business would be a colossal mistake. People that have no clue how the business works pretending like they have the answer to a question they don't even understand.
    Reply
  • mdd1963
    It's humorous that a hedge fund manager/investor thinks he actually has a say in corporate plans...or that his opinion would be printed, as though it mattered)

    (What's next...Miley Cyrus' opinion on Intel's next move?)
    Reply