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Daniel Newman, senior analyst at Futurum Research, joins Yahoo Finance Live to discuss why activist investors are targeting Intel and what to expect from the chipmaker.
Video transcript
JULIE HYMAN: Intel now shares around 2%. The title was recently upgraded after Daniel Loeb’s Third Point took a stake in the company, roughly $ 1 billion, and lobbied for some changes, possibly including for Intel to quit manufacturing its own chips. . To talk more about all of this, we’re joined by Daniel Newman now from Futurum Research. He’s a senior analyst there.
So Daniel, this is interesting, and just as a background for people, a lot of chipmakers are so-called “no fab” chipmakers. In other words, they design the chips, but they don’t manufacture them all in-house. Intel, on the other hand, manufactures most of its chips in-house. And I guess Loeb sees that and a lot of other investors see it as a downside right now. Is this a downside, and would Intel do well to move away from this model?
DANIEL NEWMAN: Yeah. First of all, thank you for inviting me. Happy New Year. It was a really eventful end to the year for Intel to have Dan Loeb and his fund come out with this memo. You know, I think Intel could definitely benefit from a better job reassuring its investors about its strategy to let them know what the company is doing.
I think it is a little inaccurate to say that they are doing their own making. Intel has for many years done part of its manufacturing outside of its own factories. And you know, I think it’s going to be something that the company can continue to use to differentiate itself.
But he also has a point. I mean, the company has been slow to see the same kinds of moves in the market as its competition, namely AMD and NVIDIA. Both are trading well north of 50 times their price – their PE ratios, while Intel is around 10. And that has a lot to do with the fact that there is some confidence in the market.
The company had many challenges to overcome, from its 14 nanometers to its 10 nanometers. This caused some problems in the fabs. Some retooling had to be done to meet yields and demand. And all of these things started to pile up and trust started to become an issue within the investment community.
Having said that, the business as an integrated – an IDM, the business has a strategy. He is moving more and more towards this chiplet or these smaller and less monolithic designs that his own fabs should be able to handle. And it could also benefit from taking advantage of a more hybrid model, as Loeb suggested.
So I think it’s somewhere in between. I don’t see the fallout happening. And I think Intel has explored this before. So there wasn’t much new to me, but I think an activist came up to say we’re going to get involved here, you certainly saw a surge in market confidence because the price immediately went up .
MYLES ABROAD: And Daniel, I guess when you look at Loeb’s letter, part of what he’s also attacking with Intel in particular is sort of a corporate culture. It really jumped out at me when he noted how many top engineers they kind of let go. And we said on the show, I don’t know what it costs to retain these people, but you know, half a million dollars or a million dollars in stock options is nothing for a company. the size of Intel.
What kinds of changes do you think need to or could even happen in such a large and entrenched company as Intel to address these culture issues, which again I think the market is looking at AMD and NVIDIA and says that’s where innovation happens because you know, everything … you know, Jensen Huang and Lisa Su. They love it, don’t they? The market loves these leaders. What can Intel do to try and get a little of that, you know, get a little of that love I guess?
DANIEL NEWMAN: This is an excellent question. Remember, it wasn’t that long ago that AMD was on the brink and its stock was trading at around $ 1. So we all know that big, strong companies can change course and get back on track quickly. And that’s what Intel is going to have to do. Intel really needs to be able to deliver on its promise with its disintegration strategy, those chiplets that I mentioned. He made big investments in AI. He acquired a company called Habana this year. AWS has actually started to deploy some of these artificial intelligence workloads from Intel, in the public cloud and its cloud.
But the question of talent is a big question mark. The company must attract the best talent. It has to start at the top of the organization. The company has made big changes. Some of them are starting to bear fruit. He left his chief engineer to – to try to change the culture. I don’t know if it’s Murthy’s fault that everything went wrong. The 14 nanometer to 10 nanometer problem was sort of ahead of its time at Intel.
But at the same time, making these changes at the top of engineering and across the organization will be what investors are going to be looking for, what the market is going to be looking for, what OEMs that buy from Intel are going. research because right now it’s all about preserving market share. It had a market share of its processors for laptops was eroded. AMD played an important role in this. We’ve seen NVIDIA rise in the AI space. And then, the data center space has probably been the most important area that Intel really needs in determining how to preserve and protect.
And I mentioned AWS, and we’ve heard rumors about Microsoft, and then of course there’s the NVIDIA arm deal. So the pressure comes from all angles, and I think Intel needs to invest, but the company is still generating strong cash flow, solid earnings, and this is a time when it could still invest. And if he can get his operations back on track quickly, he could see a shift similar to what AMD has been through that could truly release action and society into happier and more supportive spaces within the world. investor community.
BRIAN SOZZI: On the chip side more broadly, Daniel, what is the threat that Apple, Google, and Amazon are supposedly making their own chips? How big is the threat to the investment thesis this year on AMD and NVIDIA?
DANIEL NEWMAN: Well, I think overall we see this kind of local chip, you know, a thesis or this local chip development taking place. AWS was probably the first, and it’s Amazon Web Services. He started making chips, he is known in his space AI Trainium and Inferentia. It continues to manufacture more and more of these types of local chips. We have heard of Alibaba doing this. Microsoft is the new chip we’re talking about. And it was based on Arm a lot.
And now, of course, we have the NVIDIA Arm deal, which I think is one of the most important things to watch in semiconductors in 2021. This deal is huge. This will have significant and lasting impacts in the semiconductor industry. This will put NVIDIA in a position of exceptional growth. It will also have a prolonged effect on the other competition in space.
So you’re probably going to see a lot of regulators take a very close look at this deal to see if it should take off. And of course AMD acquired Xilinx expanding capacity, TAM and overall opportunity in 2021. I expect this deal to come to fruition.
So big things are happening, whether it’s chips from the big cloud players, whether it’s expanding Arm and NVIDIA, expanding AMD. We see Qualcomm, they just launched an entry-level 5G chip. It came out today. It was announced, their 480 series.
All these companies therefore continue to exert pressure. So I think Intel has what it takes, but it’s going to have to work and really do almost perfectly in the future, because I don’t think there is much room for error considering what has happened in the past two years.
JULIE HYMAN: Either way, looks like you’re going to have a busy year, Daniel. Thank you for being with us and sharing some of your thoughts today. We will talk to you soon. Daniel Newman, Futurum Research, Senior Analyst, appreciates it.
DANIEL NEWMAN: Thank you for.
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