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Coming off one of its worst quarterly performances in recent memory in which it missed top and bottom-line estimates for Q2 and issued very weak Q3 guidance, it seems that beleaguered chip maker Intel (INTC) sees the sharks circling. According to a report from CNBC last Friday night, INTC has hired advisors from Morgan Stanley (MS) and perhaps other firms to help defend itself against possible battles with activist investors.

• At this point, no concrete activist investor activity has materialized, but with shares of INTC plunging by 60% on a year-to-date basis, the company has certainly become an easy target. INTC's issues are both deep and many, but the biggest indictment against its leadership is the massive share losses it has suffered at the hands of Advanced Micro Devices (AMD) and NVIDIA (NVDA).
• From a technology and product standpoint, INTC was simply unprepared to capitalize on the explosion of AI, which has necessitated massive investments in new data center chips -- an area that NVDA and AMD have dominated. To illustrate just how far INTC has fallen behind, in Q2, revenue in its Data Center and AI segment fell by 3%, while AMD's Data Center segment experienced a 115% surge in revenue. NVDA, which is slated to report Q2 earnings after the close on Wednesday, saw its revenue rocket higher by 262% last quarter.
• If an activist investor does home in on INTC, it seems likely that the aim would be to reduce its cost structure and to sharpen its focus on AI and its core businesses. In that brutal Q2 earnings report, INTC also announced a headcount reduction of at least 15% of its workforce, along with a 20% cut to its 2024 capex projection and the suspension of its dividend. However, it wouldn't be surprising if an activist investor pressed INTC to take it a step further by divesting some non-core assets.
• INTC already has an established track record of executing such transactions. In October 2022, the company spun off ADAS technology company Mobileye Global (MBLY), and this past February, it spun off Altera into a new standalone FPGA company. Additionally, in September 2023, it sold a 10% stake in the IMS Nanofabrication business for $4.3 bln to Taiwan Semiconductor Manufacturing (TSM). 
• It would be pure speculation to suggest what other assets an activist investor could set its sights on for divestiture -- if any at all -- but INTC needs more capital to fund its "IDM 2.0" strategy, which is the company's strategy of rededicating itself to technology leadership, while also transitioning to a foundry model. For some perspective, INTC's cash flow from operations for the six months ended June 29, 2024 was $1.07 bln. Ten years earlier, the company generated cash flow of nearly $9.0 bln for the six months ended June 208, 2014.

The main takeaway is that INTC and its leadership team is a vulnerable position as the company's turnaround plan falters and as it continues to miss out on one of the most powerful growth catalysts to come through the semiconductor industry in decades. Although INTC has taken some steps to reduce its cost structure, activist investors may be looking for the company to take even more drastic measures.