The past year was certainly not a year that should make investors of Intel (NASDAQ 🙂 proud. It was a period when the largest chip maker in the world lost its appeal as smaller competitors gained ground and the company's factories failed to bring the latest and fastest chips to market.
These ongoing setbacks are seen by some as a sign that the company's 50-year-old strategy of designing and manufacturing its own semiconductors is no longer working.
Its competitors, including Advanced Micro Devices (NASDAQ 🙂 and NVIDIA (NASDAQ :), are design chips built by outsiders led by Taiwan Semiconductor Manufacturing (NYSE :).
As California-based Intel struggles to overcome its worst crisis in at least a decade, an activist investor insists, after building a & # 39; significant & # 39; position in its stock, with the company to investigate strategic alternatives, including a possible breach of the chipmaker and the sale of its assets.
Said Dan Loeb of Third Point LLC in a letter to the Intel board, according to Bloomberg:
“We cannot comprehend how the boards that foresaw Intel's demise could have allowed management to devour the company's leading market position while rewarding them lavishly with an extravagant compensation package. no longer tolerate duty. "
This frustration by shareholders certainly makes sense. Intel stock has been the worst performer for the past year compared to its biggest competitors.
It's down about 17% in the past 12 months as rivals, including AMD and NVIDIA, more than doubled in value.
Strategic Alternatives
Loeb urged Intel in his letter to hire an investment bank to evaluate strategic alternatives, including whether it should remain a manufacturer of integrated devices and to investigate divestment of "certain failed acquisitions".
Loeb added that Intel should be able to make products for major players like Amazon (NASDAQ 🙂 and Apple (NASDAQ :), who develop their own chip designs and have them manufactured abroad.
For long-term investors looking to capitalize on the weakness of Intel stocks, the main concern is whether the new year will be worse than 2020. Or will it bring about a change that the chip maker badly needs?
Despite all the manufacturing challenges and competition, we believe Intel offers good long-term value. Intel CEO Bob Swan is already working to prepare the company for these challenges. He wants Intel's design teams to be more flexible about where the chips are made and expects to announce a decision this month about whether the company will outsource some of its products before 2023, Reuters said.
He is also rapidly rebalancing the company's portfolio and exiting markets where he cannot beat the competition. For example, Intel announced last quarter that it was going to give its subsidiary Nand memory chips to South Korean SK Hynix Inc. for approximately $ 9 billion. sold.
On the other hand, the pandemic has fueled demand for Intel's high-margin products, including the most advanced data center processors. That demand has been driving forward over the past three quarters, aided by the continued strong shipments to data centers from the world's largest cloud computing companies, such as Amazon.
Bottom Line
Some analysts have turned extremely bearish about Intel's outlook as it goes through a rough time, but we continue to believe the company has what it takes to recover. Intel is ingrained in the psyche of the tech world, and management has the ability to recover from this impasse. The involvement of an activist investor will only speed up that process.
