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.