Dan Loeb’s letter to Intel Corporation (NASDAQ:INTC)’s Chairman of the Board, Dr. Omar Ishrak.
Get The Full Series in PDF
Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.
Dan Loeb's Letter To Intel Corporation
Dr. Omar Ishrak
Chairman of the Board
2200 Mission College Blvd
Santa Clara, CA 95052
Dear Dr. Ishrak:
As you know, Third Point LLC recently took a significant stake in Intel Corp (the “Company”). Despite its theoretical competitive advantage as the world’s leading semiconductor business, Intel’s shares have dramatically underperformed those of its peers on a one, three, and five-year basis. It has lost over $60 billion of market capitalization over the past year alone.1 Third Point has engaged with companies facing other versions of “rough patches” for over two decades, and we would like to suggest concrete steps the Company should take to address its pressing challenges. Considering that you have been Board Chairman for less than a year, we appreciate that many of these issues have come under your purview only recently. Still, we hope that you share our view that Intel’s substantial problems must be handled with the utmost urgency.
Once the gold standard for innovative microprocessor manufacturing, Intel has lost its pole position to TSMC in Taiwan and Samsung in South Korea. Previously reliably able to progress its process technology every 2-3 years, Intel has been stuck at its 14-nanometer node since 2013, while TSMC and Samsung both transitioned to 5-nanometer this year and are developing more advanced process geometries. Intel’s plan to roll out its 7-nanometer node late 2022 or early 2023 will place the Company several years behind its Asian peers for at least the first half of this decade. This lag in advanced semiconductor manufacturing is a vulnerability that must be corrected.
The loss of manufacturing leadership and other missteps have allowed several semiconductor competitors to leverage TSMC’s and Samsung’s process technology prowess and gain significant market share at Intel’s expense. Under the visionary leadership of Dr. Lisa Su, AMD put its liquidity concerns behind it and has been taking meaningful market share in Intel’s core PC and data center CPU markets with its Ryzen and EPYC product lines. NVIDIA’s GPUs have dominated the nascent market for training complex computational models used in AI applications, a market in which Intel has largely been absent. While these companies are U.S.-based and display the breadth of America’s semiconductor design expertise, they operate no fabs themselves and leverage manufacturing in Asia to produce their products.
This raises a critical concern – the vital role of Intel’s products and services to America’s national security. In this respect, you lead one of America’s most essential boards. 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.
From a governance point of view, we cannot fathom how the boards who presided over Intel’s decline could have permitted management to fritter away the Company’s leading market position while simultaneously rewarding them handsomely with extravagant compensation packages; stakeholders will no longer tolerate such apparent abdications of duty. Of special concern is Intel’s human capital management problem and the absence of an articulated plan to address it. The Company has lost many of its most inspiring and talented chip designers and leaders, and our sources indicate that those who remain (several of whom are highly regarded in the industry) are becoming increasingly demoralized by the status quo. Intel was built on the vision of engineering genius and, without the best talent, the current trajectory will not be reversed. Solving Intel’s human capital management issue should be the Board’s most urgent task.
Considering these and other challenges, we suggest the Board retain a reputable investment advisor to evaluate strategic alternatives, including whether Intel should remain an integrated device manufacturer and the potential divestment of certain failed acquisitions. As to the former issue, recent industry developments suggest many customers (such as Apple, Microsoft and Amazon) are now developing their own in-house silicon solutions and sending those designs to be manufactured in East Asia. You must be able to offer new independent solutions to retain those customers rather than have them send their manufacturing away. Just as Netflix uses Amazon’s AWS for cloud services, Intel must figure out how to serve its competitors as customers.
While we believe it is in the best interest of the Company to release this letter publicly and share our views with fellow shareholders and other stakeholders, there are other specific issues we would like to discuss privately and look forward to a constructive dialogue to help Intel chart a new course. Although we expect these conversations to be productive, we are filing for Hart-Scott-Rodino approval with the Federal Trade Commission to acquire incremental common shares and engage more actively with the Company, as well as to preserve the option to submit nominees for election to the Board at the 2021 Annual Meeting should we sense a reluctance to work together to address the concerns we have raised in this letter. While we have no agreements in place, we have specific recommendations regarding certain changes that we are confident will resonate with the Board and fellow shareholders.
We look forward to discussing this with you soon.
Daniel S. Loeb
Founder and CEO
Third Point LLC