Earlier today, Reuters reported that activist hedge fund Third Point sent a letter to Intel urging the company to consider strategic alternatives. A source said the alternatives included a potential separation of Intel's manufacturing business, possibly through a joint venture.
Intel has now issued a statement: "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."
Wells Fargo weighs in, saying that Third Points' "views are justified/warranted" but the firm continues "to struggle with the belief that Intel would completely dislodge itself from internal manufacturing."
Intel leaning more into external foundries for its core PC and data CPUs would be "a significant effort that would likely need to play out over several generations given the complexities involved," says the firm.
But Wells Fargo doesn't think moves in other areas of Intel's business would change the company's "challenged narrative."
Upcoming catalyst: Intel was already planning to provide a strategic update in January either with the Q4 results or in a standalone event.
RBC says Intel could form a JV with foundry giants TSMC or Samsung to utilize their manufacturing facilities, which are unlikely to build out to meet Intel's volume needs.
The firm notes that a JV would help but it "does not solveIntel's core issue: manufacturing."
RBC thinks Intel could take a 30% or higher gross margin hit if manufacturing was outsourced to TSM C or Samsung.
Background: Daniel Loeb's Third Point has a nearly $1B stake in Intel and expressed concerns about the company's market share and chip designer losses.