Activist investor pressures Texas Instruments to stop spending cash on fabs Notorious tech investment firm Elliott Management has penned a letter to Texas Instruments urging the company to change course on its aggressive plan to boost manufacturing capacity. The $65 billion hedge fund, which has amassed a $2.5 billion stake in Texas Instruments, says in its letter [PDF] that the chipmaker is investing …
Nor necessarily in the long term interests of investors. Basically, the activists investors want TI to dramatically reduce investment in future products and capacity so that the company has more cash that it would then be forced to pay as dividends or in share buy backs. Either dividends or buybacks are expected to ramp the short term price, and that's all these short term shysters want. When they've pumped and dumped the stock, TI will actually be worth less.
Same short-term thinking that has beaten up Intel so badly over the last decade-plus. Under Otellini, Krasanich, and Swan, the focus was relentlessly on Wall Street; keeping the dividends and stock price up and cutting R&D capex to the bone to do so ("hey, this is the semiconductor industry, who the hell needs to invest in process technology and fabs?"). And we can all see the result. Gelsinger has a Herculean task in hand to try and undo the damage - "Welcome to the bridge of the Exxon Valdez! Congratulations, you're now the Captain! Good luck, and try to avoid that rocky reef that's a mile directly ahead and getting closer at full steam..."
If only there was the prospect of increased capacity being needed in the near future - some technology revolution on the horizon like self-driving cars or AI, or China invading Taiwan...
OK, so TI might not be able to make the high-end chips, but I'd bet there's plenty of pie to go around.
As said by others, "activist investors" aren't looking for long term growth.
Same story every single time.
Grab a successful company.
Empty it out, make sure it picks up billions in loans and pays that back to investors.
Company goes bust, thousands lose their jobs, job leave the town/country forever and go to a fab in China.
Investors don't care, they git their Christmas bonus.
You've got love American patriots.
JFK : ”My fellow Americans, ask not what your country can do for you, ask what you can do for your country".
Vultures : "My fellow Americans, ask not what you can do for your country. ask how much your country can subsidise and support you, whilst you avoid doing anything remotely meaningful in life”.
What really pisses me off as an investor is the profligate waste of silicon in the output transistors on the chips. Any investor can see that shrinking the output transistors by 20% would just make the chips run a little bit hotter and the customers wouldn't even notice the difference. And don't get me started on the excessive ESD protection structures, whose only function is to actually shrink the lucrative future sales of replacement chips.
It's clear that not just the executive team, but also the chip design team needs more direct input from activist investors.
I'm strongly wondering how many companies would be better off not releasing shares when they need a cash injection, but just taking it a bank loan.
The bank charges interest, but the moment the loan is paid off you don't owe them a single cent more.
The share sale doesn't cost you anything right away, but then you're stuck with investors who only care about the share price and that it keeps going up. And your paying dividends to them for EVER. A share buyback will cost you more than a bank loan ever would have (because of the demand for rising shares prices). And your investors do not care about the long term health of your company, only the next quarter.
How many firms would be better off just taking out a loan to get to the next level?
As a few other rights issues have demonstrated recently. Tapping the shareholders for more is perceived as cheaper right now than taking loans or issuing bonds.
The world needs a shit ton of investment yet returns on borrowing do not stack up particularly well in the world of interest rates being non zero. The consequences are stagnation.
Government borrowing in a lot of cases would actually make vastly more sense to finance investment though it is regarded as taboo for “reasons”. What’s wrong with a country investing in itself? A lot, according to the free market nonsense that has taken root.
TI regularly invests in fab improvements and/or capacity during downturns, because the $million equipment is much cheaper then. They've done it this way for decades now. Not just recently, but pretty much from the start of the company onward.
It's not great for short-term investors (like, say, "activist" hedge fund managers), but has worked a great many times. Fairly sensible long-term thinking.
...is why China have the 10 year plans and why they became the industrial power house it is.
Sure, stop investing, but in 10 years time, don't come crying when you can't sell your chips outside of the protected US and Europe markets, because the Chinese have better and cheaper ones on the world stage.
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