Tuesday, December 29th 2020

Hedge Fund Urges Intel to Outsource Chip Production: Reuters

Intel is familiar with chip manufacturing problems since the company started the development of a 10 nm silicon semiconductor node. The latest node is coming years late with many IPs getting held back thanks to the inability of the company to produce it. All of Intel's chip production was historically happening at Intel's facilities, however, given the fact that the demand for 14 nm products is exceeding production capability, the company was forced to turn to external foundries like TSMC to compensate for its lack of capacity. TSMC has a contract with Intel to produce silicon for things like chipsets, which is offloading a lot of capacity for the company. Today, thanks to the exclusive information obtained by Reuters, we have information that a certain New York hedge fund, Third Point LLC, is advising the company about the future of its manufacturing.

The hedge fund is reportedly accounting for about one billion USD worth of assets in Intel, thus making it a huge and one influencing shareholder. The Third Point Chief Executive Daniel Loeb wrote a letter to Intel Chairman Omar Ishrak to take immediate action to boost the company's state as a major provider of processors for PCs and data centers. The company has noted that Intel needs to outsource more of its chip production to satisfy the market needs, so it can stay competitive with the industry. The poor performance of Intel has reflected on the company shares, which have declined about 21% this year. This has awoken the shareholders and now we see that they are demanding more aggressiveness from the company and a plan to outsource more of the chip production to partner foundries like TSMC and Samsung. It remains to be seen how Intel responds and what changes are to take place.
Source: Reuters
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24 Comments on Hedge Fund Urges Intel to Outsource Chip Production: Reuters

#1
ixi
I aint gonna lie, unbelievable.
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#2
LFaWolf
Hedge fund is just upset the stock value has declined 20%. Intel's problem is not going to be solved by outsourcing chip production. Intel has lost its way; its engineering way. It has done layoffs, and also lost many top engineering talents to companies such as Apple. The company's culture has gone extremely toxic. It needs to re-examine its root as an innovative company. It needs to build better products. It still has the brand name (but not for long). And most important of all, it needs a new CEO who will put the focus back on technology, not the fab.
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#3
mtcn77
It is a good moment to read Atlas Shrugged. Grab myself a cup of coffee...
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#4
voltage
LFaWolfHedge fund is just upset the stock value has declined 20%. Intel's problem is not going to be solved by outsourcing chip production. Intel has lost its way; its engineering way. It has done layoffs, and also lost many top engineering talents to companies such as Apple. The company's culture has gone extremely toxic. It needs to re-examine its root as an innovative company. It needs to build better products. It still has the brand name (but not for long). And most important of all, it needs a new CEO who will put the focus back on technology, not the fab.
I happen to agree on every point, except "The company's culture has gone extremely toxic" prove it. also, do you know why they "lost their way" ? and when it started? why and when matter, because, if companies do not pin point reason for fault, the same problems can happen again.
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#5
mtcn77
voltageI happen to agree on every point, except "The company's culture has gone extremely toxic" prove it. also, do you know why they "lost their way" ? and when it started? why and when matter, because, if companies do not pin point reason for fault, the same problems can happen again.
They started a product security and assurance group. It put HR ahead of engineering. Great intuition to turn an engineering company to a service company.
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#7
LFaWolf
voltageI happen to agree on every point, except "The company's culture has gone extremely toxic" prove it. also, do you know why they "lost their way" ? and when it started? why and when matter, because, if companies do not pin point reason for fault, the same problems can happen again.
Prove it? Honestly I don't have to, but okay. Wife worked for Intel as a chip designer. Left after completing socket R. The many stories of backstabbing, people stealing your work/credit, manager favoring another person because she flirts with him, discrediting a brilliant senior engineer for his hard work. Underpaying their senior engineers. Creating toxic competitive environment on purpose. Too many stories to tell. Her friend got layoff and then went to work for Apple instead. Another brilliant engineer left and went to work for Microsoft. When did it start? Simple. Find the first non-engineer that became the CEO of the company (hint: it is Otelllini) and only care for the top and bottom lines. It needs to get back to its root of building great products and value its engineers. It is really that simple.
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#8
Flanker
LFaWolfProve it? Honestly I don't have to, but okay. Wife worked for Intel as a chip designer. Left after completing socket R. The many stories of backstabbing, people stealing your work/credit, manager favoring another person because she flirts with him, discrediting a brilliant senior engineer for his hard work. Underpaying their senior engineers. Creating toxic competitive environment on purpose. Too many stories to tell. Her friend got layoff and then went to work for Apple instead. Another brilliant engineer left and went to work for Microsoft. When did it start? Simple. Find the first non-engineer that became the CEO of the company (hint: it is Otelllini) and only care for the top and bottom lines. It needs to get back to its root of building great products and value its engineers. It is really that simple.
Man I thought the stories about Intel's culture under Grove was horrible, but this is a whole different level.
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#9
DeathtoGnomes
mtcn77It is a good moment to read Atlas Shrugged. Grab myself a cup of coffee...
Read aloud, and make me a cup too. Do my work too so I can get paid the same as you.

/ontop
This reminds me of that AMD scam a while back to manipulate stock prices.
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#10
Totally
Excuse me, who do they expect Intel to outsource to? The same companies claiming that they have to increase prices because of reduced output capacity for whatever reason and excessive demand?
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#11
lexluthermiester
AleksandarKHedge Fund Urges Intel to Outsource Chip Production: Reuters
This is the LAST thing Intel wants to go full force into.
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#12
xenocide
TotallyExcuse me, who do they expect Intel to outsource to? The same companies claiming that they have to increase prices because reduce output capacity for whatever reason?
It's almost like this is a big nothing from a hedge fund manager that fundamentally does not understand the industry.
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#13
xSneak
Was this the hedge fund's private advice for intel that was too top secret to publicly disclose? :laugh:
Seems like a pump and dump scheme.
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#14
Easo
Is one billion in Intel really that much...?
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#15
Hardware Geek
Considering the fact that they don't have enough capacity to produce their own products, selling their fabs makes no sense. They need to invest in the engineering necessary to bring more advanced nodes to market. Outsourcing the manufacturing process will simply force them to compete with other manufacturers for fab space, thereby raising prices and/or lowering profitability.
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#16
PrEzi
EasoIs one billion in Intel really that much...?
If you add to this the 36 Billions in debt (increased by 6B since 3-2020) plus how the stock constantly drops on average since 2020 then it might paint a different picture.
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#17
mtcn77
Also, you guys know I'm Turkish right?
There was a weekend special cover at a local newspaper a few years back. The lady guest stated her managerial position at Intel and, I kid you not, she openly stated "At the company meetings, she was happy to feel that she was the stupidest person in the room". Just how much of a backward society Intel has become over the years. Race to the bottom, you would say?
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#18
HansRapad
I don't see Other Semiconductor rival Intel in Supply chain atm,

Intel has multiple fabs on multiple location that are far larger than their competitor, sure they behind on process technology, but in term of supply chain, no one close
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#19
dicktracy
TSMC is a time bomb for Western companies. Dumb idea.
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#21
ThrashZone
Hi,
Usually would be in the cheapest labor and power available countries
Don't see that in Arizona or USA in general even though it would be fully automated power in the USA will be rising soon.
Posted on Reply
#23
lexluthermiester
EasoIs one billion in Intel really that much...?
No, not really.
Frank_100Hedge fund can pound sand.
Exactly.
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#24
Ravenas
They should have done this years ago when the problem was identified. The true problem is that top management didn't take AMD as a serious threat to their consumer or enterprise business, and this was a mistake. Even when they knew they were having manufacturing problems getting beyond 14 nm while AMD was at 32nm on the verge of bankruptcy developing a last effort strategy to outsource fabbing.

At this point, it's too late. TSMC can't even keep consistent supply for buyers outside of Apple. There is just too much demand. It's easy for a hedge fund activist to just come out and say this, but in practice where is Intel going to go for outside fabbing that is competitive with TSMC nodes which are already maxed out.
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