`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
`
`
`
`EDITH LISS, derivatively on behalf of
`INTEL CORPORATION,
`
`
`Plaintiff,
`
`
`
`
`Civil Action No.:_____________________
`
`
`
`
`
`
`
`
`
`JURY TRIAL DEMANDED
`
`
`ROBERT H. SWAN, GEORGE S. DAVIS,
`VENKATA S.M. RENDUCHINTALA, DR.
`OMAR ISHRAK, JAMES J. GOETZ,
`ALYSSA HENRY, RISA LAVIZZO-
`MOUREY, TSU-JAE KING LIU, GREGORY
`D. SMITH, ANDREW WILSON AND
`FRANK D. YEARY
`
`
`
`v.
`
`Defendants,
`
`
`
`
`
`and
`
`
`INTEL CORPORATION
`
`
`Nominal Defendant.
`
`
`VERIFIED STOCKHOLDER DERIVATIVE COMPLAINT
`Plaintiff Edith Liss, (“Plaintiff”), by and through her undersigned attorneys, hereby
`submits this Verified Shareholder Derivative Complaint (the “Complaint”) for the benefit of
`nominal defendant Intel Corporation (“Intel” or the “Company”) against the Individual
`Defendants (defined herein) seeking to remedy their breaches of fiduciary duties and other
`violations of law from October 25, 2019 until July 23, 2020 (the “Relevant Period”). Plaintiff
`makes these allegations upon personal knowledge as to those allegations concerning Plaintiff
`and, as to all other matters, upon information and belief based on the investigation of
`undersigned counsel, which includes, without limitation: (a) review and analysis of public filings
`made by Intel with the United States Securities and Exchange Commission (“SEC”); (b) review
`and analysis of press releases and other publications disseminated by Intel; (c) review of news
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 2 of 33 PageID #: 2
`
`articles, stockholder communications, and postings on Intel’s website concerning the Company’s
`public statements; (d) pleadings, papers, and any documents filed with and publicly available
`from a related pending consolidated securities fraud class action pending in the Northern District
`of California captioned, In re: Intel Corp. Securities Litigation, Case No. 5:20cv5194 (the
`“Securities Class Action”); and (e) review of other publicly available information concerning
`Intel and the Individual Defendants (as defined below).
`INTRODUCTION
`
`1.
`
`This is a shareholder derivative action asserting claims for breach of fiduciary
`
`duty, unjust enrichment, and violations of Section 14(a) of the Securities Exchange Act of 1934
`
`(the “Exchange Act”) and SEC Rule 14a-9 promulgated thereunder against certain officers and
`
`members of the Company’s Board of Directors (the “Board”).
`
`2.
`
`Intel designs and manufactures microprocessors and other semiconductor
`
`components that are used in computers, data centers, communications infrastructure, and
`
`other devices.
`
`3.
`
`New manufacturing processes in the semiconductor industry are measured by
`
`nanometers or “nm”—referring to the size of the transistors on the chips used to make calculations.
`
`The smaller the transistors, the more processing power that can be included in a chip’s finite space.
`
`These technological advancements help companies make semiconductors that have smaller
`
`circuits, which allows the components to count faster, store more information or use less
`
`electricity.
`
`4.
`
`Intel is unique among semiconductor companies because it designs and produces
`
`its products in its own manufacturing facilities. Most of its competitors, including Advanced
`
`Micro Devices, Inc. (“AMD”), focus on design and rely upon third-party foundries, such as
`
`Taiwan Semiconductor Manufacturing Co. (“TSMC”), to manufacture their chips. The ability to
`
`2
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 3 of 33 PageID #: 3
`
`focus solely on production has helped TSMC improve its manufacturing capabilities faster than
`
`Intel and has given companies such as AMD an opportunity to compete with Intel.
`
`5.
`
`The wrongdoing alleged herein arises from the Individual Defendants’ repeated
`
`misrepresentations to investors regarding Intel’s development and manufacturing of a new,
`
`seven-nanometer chip. Prior to the start of the Relevant Period, Intel repeatedly delayed the
`
`launch of its 10-nanometer chips due to flaws in Intel’s manufacturing process. Those delays
`
`tarnished Intel’s reputation as a premier semiconductor chip maker and allowed the Company’s
`
`competitors to bring more advanced technology to market.
`
`6.
`
`In April 2018, to address Intel’s flawed execution in the development and
`
`production of its 10-nanometer chips, the Company hired Jim Keller (“Keller”), one of the
`
`industry’s most highly respected chip architects, as a Senior Vice President who would revitalize
`
`Intel’s struggling chip-design enterprise.
`
`7.
`
`Accordingly, by the start of the Relevant Period, Intel purported to have
`
`positioned itself to promptly and successfully produce its next generation seven-nanometer
`
`chip, which was scheduled to debut in late 2021. Given Intel’s previous problems with the 10-
`
`nanometer chips, the Individual Defendants knew that the Company’s timely development and
`
`production of the seven-nanometer chip was critically important to Intel and its investors.
`
`8.
`
`Throughout the Relevant Period, the Company repeatedly assured investors that it
`
`was making “good progress” on its seven-nanometer chip and that Intel’s first seven-
`
`nanometer product was “on track” to launch by late 2021. Intel also touted its “in-house
`
`manufacturing as an important advantage” over its competitors. These and similar statements
`
`made throughout the Relevant Period were false. In reality, the Individual Defendants knew, or
`
`recklessly disregarded, that as a result of a material defect in Intel’s manufacturing process, the
`
`3
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 4 of 33 PageID #: 4
`
`Company could not timely launch its next generation seven-nanometer chip. As a result of
`
`the Company’s defective manufacturing process, the Individual Defendants also knew or
`
`recklessly disregarded that Intel’s strategy of designing and manufacturing its products in-
`
`house did not provide the competitive advantage touted to investors.
`
`9.
`
`The truth began to emerge on June 11, 2020, when Intel announced that Keller
`
`had abruptly resigned for “personal reasons,” effective immediately. Keller’s departure came as a
`
`surprise to many in the industry.
`
`10.
`
`The Company also revealed significant leadership changes within its Technology,
`
`Systems Architecture and Client Group—the group responsible for engineering and
`
`manufacturing Intel’s chips. As a result of these disclosures, the Company’s stock price declined
`
`by $4.17 per share, or 6.5%, from $63.87 per share to $59.70 per share.
`
`11.
`
`Then, on July 23, 2020, after the market closed, Intel shocked investors when it
`
`revealed that production of its seven-nanometer chips was a full 12 months behind schedule, and
`
`would not be arriving until later 2022 or early 2023. The Company attributed the delay to a
`
`“defect” in Intel’s seven-nanometer manufacturing process. Intel also revealed in an
`
`unprecedented move that, as a result of its production problems, it would use a competitor’s
`
`manufacturing facilities if it could not resolve the delay quickly. These disclosures caused the
`
`price of Intel stock to decline by $9.81 per share, or 16.2%, from $60.40 per share to $50.59 per
`
`share.
`
`12.
`
`On July 27, 2020, Intel announced additional sweeping changes to the
`
`Company’s Technology, Systems Architecture and Client Group. The division will now be split
`
`up into five different teams, divvying up responsibilities in technology development,
`
`manufacturing, design engineering, architecture, and supply chain management, and the leaders
`
`4
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 5 of 33 PageID #: 5
`
`of each of those groups will report directly to Intel’s CEO. The changes also included the
`
`ousting of the Company’s Chief Engineering Officer, Defendant Venkata S.M. Renduchintala
`
`(“Renduchintala”).
`
`13.
`
`The Individual Defendants breached their fiduciary duties of loyalty, good faith,
`
`due care, oversight, and candor by knowingly engaging in the deceptions alleged herein.
`
`14.
`
`As a direct and proximate result of the Individual Defendants’ breaches of
`
`fiduciary duties, Intel has sustained damages as described below.
`
`JURISDICTION AND VENUE
`
`15.
`
`This Court has jurisdiction over the claims asserted herein pursuant to Section 27
`
`of the 1934 Act because the claims asserted herein arise under Sections 14(a) of the 1934 Act
`
`and Rule 14a-9.
`
`16.
`
`This Court has supplemental jurisdiction over Plaintiff’s state law claims pursuant
`
`to 28 U.S.C. § 1367(a).
`
`17.
`
`This derivative action is not a collusive action to confer jurisdiction on a court of
`
`the United States that it would not otherwise have.
`
`18.
`
`The Court has personal jurisdiction over each of the Defendants because each
`
`Defendant is an individual who has minimum contacts with this District to justify the exercise of
`
`jurisdiction over them.
`
`19.
`
`Venue is proper in this District pursuant to 28 U.S.C. §§ 1391 and 1401 because
`
`Intel is incorporated in this District. In addition, the defendants have conducted business in this
`
`District, and the defendants’ actions have had an effect in this District.
`
`20.
`
`Finally, the Amended and Restated Certificate of Incorporation of Intel includes
`
`an exclusive forum selection clause requiring all derivative actions be brought in “Delaware
`
`Court of Chancery (except that, in the event the Delaware Court of Chancery lacks subject matter
`
`5
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 6 of 33 PageID #: 6
`
`jurisdiction over any such action or proceeding, then the sole and exclusive forum for such action
`
`or proceeding shall be the federal district court for the District of Delaware).”
`
`PARTIES
`
`21.
`
`Plaintiff is a stockholder of Intel, was a stockholder of Intel at the time of the
`
`wrongdoing alleged herein and has been a stockholder of Intel continuously since that time.
`
`22.
`
`Defendant Intel is a global technology company. Incorporated in Delaware, the
`
`Company maintains its corporate headquarters at 2200 Mission College Boulevard, Santa Clara,
`
`California. Intel common stock trades on NASDAQ under ticker symbol “INTC.”
`
`23.
`
`Defendant Robert H. Swan (“Swan”) has served as Intel’s Chief Executive
`
`Officer (“CEO”) and as a director since January 30, 2019. Before being named CEO, Swan was
`
`interim CEO for seven months and was Chief Financial Officer (“CFO”), where he oversaw
`
`Intel’s global finance organization, mergers and acquisitions, investor relations, information
`
`technology, and the company’s Corporate Strategy Office. For 2019, Defendant Swan received
`
`an astounding $66,935,100 in total compensation. As discussed herein, at the 2020 annual
`
`meeting held on May 14, 2020, Intel stockholders voted against an advisory vote on Swan’s
`
`executive pay, demonstrating stockholder dissatisfaction on Swan’s executive compensation.
`
`24.
`
`Defendant George S. Davis (“Davis”) has served as Intel’s CFO since April 3,
`
`2019. Davis is also an Executive Vice President. Davis leads Intel’s global finance organization,
`
`including finance, accounting and reporting, tax, treasury, internal audit, and investor relations.
`
`He also oversees Intel’s information technology (IT) organization.
`
`6
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 7 of 33 PageID #: 7
`
`25.
`
`Defendant Renduchintala served as Intel’s Chief Engineering Officer and
`
`President of the Company’s Technology, Systems Architecture and Client Group from April 12,
`
`2017 until August 3, 2020.1
`
`26.
`
`Defendant Dr. Omar Ishrak (“Ishrak”) has served on the Board since March 2017
`
`and has been Chairman of the Board since January 2020.
`
`27.
`
`Defendant James J. Goetz (“Goetz”) has served on the Board since November
`
`2019.
`
`28.
`
`Defendant Alyssa Henry (“Henry”) has served on the Board since January 2020
`
`and on the Audit Committee of the Board since May 2020.
`
`29.
`
`Defendant Risa Lavizzo-Mourey (“Lavizzo-Mourey”) has served on the Board
`
`since March 2018.
`
`30.
`
`Defendant Tsu-Jae King Liu (“Liu”) has served on the Board since July 2016. Liu
`
`serves on the Audit Committee of the Board.
`
`31.
`
`Defendant Gregory D. Smith (“Smith”) has served on the Board since March
`
`2017. Smith serves on the Audit Committee of the Board.
`
`32.
`
`Defendant Andrew Wilson (“Wilson”) has served on the Board since September
`
`2017.
`
`33.
`
`Defendant Frank D. Yeary (“Yeary”) has served on the Board since March 2009
`
`and served on the Audit Committee at all relevant times until he was replaced by Defendant
`
`Henry on the Audit Committee in May 2020.
`
`
`1 In 2018, Intel’s Client and Internet of Things Businesses and System Architecture Group
`evolved into the Technology, Systems Architecture and Client Group.
`
`7
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 8 of 33 PageID #: 8
`
`34.
`
`Defendants Swan, Davis, Renduchintala, Goetz, Henry, Ishrak, Lavizzo-Mourey,
`
`Liu, Smith, Wilson, and Yeary are collectively referred to hereinafter as the “Individual
`
`Defendants.”
`
`35.
`
`The Individual Defendants, because of their positions with Intel, possessed the
`
`power and authority to control the contents of the Company’s reports to the SEC, press
`
`releases, and presentations to securities analysts, money and portfolio managers, and institutional
`
`investors. Each of the Individual Defendants was provided with copies of the Company’s
`
`reports, presentations, and press releases alleged herein to be misleading prior to, or shortly
`
`after, their issuance and had the ability and opportunity to prevent their issuance or cause them
`
`to be corrected. Because of their positions and access to material non-public information
`
`available to them, each of the Individual Defendants knew that the adverse facts specified herein
`
`had not been disclosed to, and were being concealed from, the public, and that the positive
`
`representations which were being made were then materially false and/or misleading.
`
`DUTIES OF THE INDIVIDUAL DEFENDANTS
`
`36.
`
`By reason of their positions as officers and/or directors of the Company and
`
`because of their ability to control the business and corporate affairs of the Company, the
`
`Individual Defendants owed the Company and its stockholders the fiduciary obligations of good
`
`faith, loyalty, and candor and were and are required to use their utmost ability to control and
`
`manage the Company in a fair, just, honest, and equitable manner. The Individual Defendants
`
`were and are required to act in furtherance of the best interests of the Company and its
`
`stockholders so as to benefit all stockholders equally and not in furtherance of their personal
`
`interest or benefit. Each director and officer of the Company owes to the Company and its
`
`stockholders the fiduciary duty to exercise good faith and diligence in the administration of the
`
`8
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 9 of 33 PageID #: 9
`
`affairs of the Company and in the use and preservation of its property and assets, and the highest
`
`obligations of fair dealing.
`
`37.
`
`The Individual Defendants, because of their positions of control and authority as
`
`directors and/or officers of the Company, were able to and did, directly and/or indirectly,
`
`exercise control over the wrongful acts complained of herein.
`
`38.
`
`To discharge their duties, the officers and directors of the Company were required
`
`to exercise reasonable and prudent supervision over the management, policies, practices and
`
`controls of the Company. By virtue of such duties, the officers and directors of Intel were
`
`required to, among other things:
`
`a. ensure that the Company complied with its legal obligations and requirements,
`
`including acting only within the scope of its legal authority and disseminating truthful and
`
`accurate statements to the SEC and the investing public;
`
`b. conduct the affairs of the Company in a lawful, efficient, business-like manner so
`
`as to make it possible to provide the highest quality performance of its business, to avoid wasting
`
`the Company’s assets, and to maximize the value of the Company’s stock;
`
`c. properly and accurately guide investors and analysts as to the true financial
`
`condition of the Company at any given time, including making accurate statements about the
`
`Company’s financial results and prospects, and ensuring that the Company maintained an
`
`adequate system of financial controls such that the Company’s financial reporting would be true
`
`and accurate at all times;
`
`d. remain informed as to how the Company conducted its operations, and, upon
`
`receipt of notice or information of imprudent or unsound conditions or practices, make
`
`9
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 10 of 33 PageID #: 10
`
`reasonable inquiry in connection therewith, and take steps to correct such conditions or practices
`
`and make such disclosures as necessary to comply with federal and state securities laws; and
`
`e. ensure that the Company was operated in a diligent, honest, and prudent manner
`
`in compliance with all applicable federal, state, and local laws, rules, and regulations.
`
`39.
`
`Each Individual Defendant, as a director and/or officer, owed to the Company and
`
`its stockholders the fiduciary duties of loyalty, good faith and candor in the management and
`
`administration of the affairs of the Company, as well as in the use and preservation of its
`
`property and assets. The conduct of the Individual Defendants complained of herein involves a
`
`knowing and culpable violation of their obligations as directors and officers of the Company, the
`
`absence of good faith on their part, and a conscious disregard for their duties to the Company and
`
`its stockholders that Individual Defendants were aware or should have been aware posed a risk
`
`of serious injury to the Company.
`
`40.
`
`The Company has adopted the Intel Code of Conduct (the “Code”) that applies to
`
`all employees, including officers and members of the Board. The Code states:
`
`Conduct Business with Honesty and Integrity
`
`One of our core values is to conduct business with uncompromising integrity and
`professionalism. We put this value into practice by:
`
`• Communicating clearly, respectfully, and professionally in business,
`
`• Treating customers, suppliers, distributors, and others fairly,
`
`• Acting as a responsible corporate citizen, respecting human rights, and
`managing the impact of our business on the world around us, and
`
`• Keeping accurate financial and other books and records.
`
`Public Communications
`
`***
`
`10
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 11 of 33 PageID #: 11
`
`As a publicly traded company, Intel must comply with a variety of regulations that
`govern public communications to investors and the public and promote transparency
`in financial markets. Intel has specific requirements for financial reports and
`documents that the company files with or submits to the U.S. Securities and
`Exchange Commission and in other public communications.
`
`Therefore, if you are responsible for preparing such reports or contributing
`information for such reports, you need to ensure that the disclosures are accurate,
`reliable, and complete.
`
`41.
`
`Additionally, during the Relevant Period the purpose of the Audit Committee
`
`comprised of Defendants Smith, Yeary, and Liu (the “Audit Committee Defendants”) was to
`
`“represent and assist the Board of Directors in its general oversight of the company’s accounting
`
`and financial reporting processes, audits of the financial statements, internal control and audit
`
`functions, and compliance with legal and regulatory requirements and ethical standards adopted
`
`by the company.”
`
`42.
`
`Per the Audit Committee Charter, the responsibilities of the Audit Committee
`
`Defendants included, among other things:
`
`
`
`
`
`• Obtains and reviews annually a report by the independent auditor
`describing the firm’s internal quality-control procedures; any material
`issues raised by the most recent internal quality-control review, peer
`review, Public Company Accounting Oversight Board (“PCAOB”)
`inspection, or by any inquiry or investigation by governmental or
`professional authorities, within the preceding five years, respecting
`one or more independent audits carried out by the firm, and any steps
`taken to deal with any such issues.
`
`• Reviews and discusses with the independent auditor: (a) its audit
`plans, and audit procedures, including the scope, fees and timing of the
`audit; (b)
`the results of
`the annual audit examination and
`accompanying management letters; (c) all critical audit matters
`(CAMs) proposed by the independent auditor to be included in the
`independent auditor’s annual audit report, and (d) the results of the
`independent auditor’s procedures with respect to interim periods.
`
`• Reviews and discusses reports from the independent auditor on (a) all
`critical accounting policies and practices used by the company, (b)
`
`11
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 12 of 33 PageID #: 12
`
`
`
`
`
`
`
`
`
`
`
`alternative accounting treatments within GAAP related to material
`items that have been discussed with management, including the
`ramifications of the use of the alternative treatments and the treatment
`preferred by the independent auditor, and (c) other material written
`communications between the independent auditor and management.
`
`• Reviews and discusses with the independent auditor the independent
`auditor’s judgments as to the quality, not just the acceptability, of the
`company’s accounting principles and such further matters as the
`independent auditors present the Committee under generally accepted
`auditing standards, and all communications that the independent
`auditor is required to give to the committee.
`
`• Discusses with management and the independent auditor quarterly
`earnings press releases, including the interim financial information and
`Business Outlook included therein, any “pro forma” or non-GAAP
`financial measures set forth in the company’s quarterly earnings press
`releases, quarterly financial statements and presentations relating
`thereto, and reviews the year-end audited financial statements and
`“Management’s Discussion and Analysis of Financial Condition and
`Results of Operations” and recommends to the Board of Directors
`whether the audited financial statements should be included in the
`Annual Report on Form 10-K for the year.
`
`• Reviews and discusses with management and the independent auditor
`various topics and events that may have significant financial impact on
`the company or
`that are
`the subject of discussions between
`management and the independent auditors.
`
`• Reviews and discusses with management the company’s major
`financial, product security, and cybersecurity risk exposures and the
`steps management has taken to monitor and control such exposures.
`
`• Reviews and discusses with management, the independent auditor, and
`the company’s chief audit executive (CAE): (a) the adequacy and
`effectiveness of the company’s internal controls (including any
`significant deficiencies or material weaknesses) and significant
`changes in internal controls reported to the Committee by the
`independent auditor or management; (b) the company’s internal audit
`procedures; and (c) the adequacy and effectiveness of the company’s
`controls and procedures, and management reports thereon.
`
`
`
`
`
`12
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 13 of 33 PageID #: 13
`
`• Reviews annually with the CAE the scope and the results of the
`internal audit program, and reviews annually the performance of both
`the internal audit group and the independent auditor in executing their
`plans and meeting their objectives. The Committee periodically
`reviews and discusses with the CAE audit findings, any problems or
`difficulties the internal auditors may have encountered during the
`course of their audits, including any restrictions on the scope of
`activities or access to required information and any significant changes
`required in the originally planned audit program. The Committee will
`review any significant issues raised in reports to management by the
`internal audit team.
`
`• Establishes procedures for the receipt, retention and treatment of
`complaints received by the company regarding accounting, internal
`accounting controls, or auditing matters, and
`the confidential,
`anonymous submission by employees of concerns
`regarding
`questionable accounting or auditing matters.
`
`
`
`
`
`43. With regard to risk oversight, the annual proxy statement filed by the Company
`
`on March 31, 2020 (“2020 Proxy”) states: “One of the Board’s important functions is oversight
`
`of risk management at Intel. Risk is inherent in business, and the Board’s oversight, assessment,
`
`and decisions regarding risks occur in the context of and in conjunction with the other activities
`
`of the Board and its committees.”
`
`BACKGROUND
`
`44.
`
`Based in Santa Clara, California, Intel designs and manufactures microprocessors
`
`and other semiconductor components that are used in computers, data centers, communications
`
`infrastructure, and other devices.
`
`45.
`
`There are two main parts to Intel's business: the designing of computer chips and
`
`the manufacturing of computer chips. Most of the Company’s rivals only do one or the other. For
`
`instance, TSMC simply manufactures chips designed by other companies, such as AMD and
`
`Apple.
`
`13
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 14 of 33 PageID #: 14
`
`46.
`
`One of the Company’s key marketable industry-leading features was that it was
`
`ahead of its competitors in manufacturing technology, however, in recent years Intel has been
`
`unable to develop new leading manufacturing technologies on its original timescales.
`
`47.
`
`Prior to the Relevant Period, Intel delayed the launch of its 10-nanometer
`
`chips by more than two years, as a result of flaws in the Company’s manufacturing process.
`
`Rivals AMD and Nvidia, which relied on outsourced chip manufacturing that continued to
`
`improve, leapfrogged ahead of the Company. These delays damaged Intel’s reputation and
`
`allowed the Company’s competitors to capture market share from Intel by bringing more
`
`advanced technology to market.
`
`48.
`
`To address the Company’s manufacturing issues, Intel hired Keller, one of the
`
`industry’s most respected chip designers, in April 2018 to revitalize its struggling chip-design
`
`enterprise.
`
`49. When Intel announced
`
`the hiring of Keller
`
`in April 2018, Defendant
`
`Renduchintala said Keller was expected to “help accelerate” the transformation in how Intel
`
`designs chips, stating “Jim is one of the most respected microarchitecture design visionaries in
`
`the industry, and the latest example of top technical talent to join Intel.”
`
`50.
`
`Given Intel’s significant missteps in manufacturing its 10-nanometer chip, the
`
`Individual Defendants knew that the Company’s ability to successfully produce its next
`
`generation seven-nanometer chip on time was of critical importance to investors. A failure by
`
`Intel to timely produce its seven-nanometer chip would undoubtedly erode public confidence in
`
`Intel’s ability to deliver high-performance and high-efficiency computing products. Accordingly,
`
`Intel repeatedly assured investors that it would deliver its seven-nanometer technology by late
`
`2021.
`
`14
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 15 of 33 PageID #: 15
`
`THE INDIVIDUAL DEFENDANTS’ MATERIALLY FALSE AND MISLEADING
`STATEMENTS DURING THE RELEVANT PERIOD
`
`51.
`
`The Relevant Period begins on October 25, 2019, the first trading day after Intel
`
`
`
`held its third quarter 2019 earnings call. During the call, which began after the market closed on
`
`October 24, 2019, Defendant Swan stated that Intel was “accelerating the pace of process node
`
`introductions and moving back to a 2-to 2.5-year cadence” on its chip development and that the
`
`Company’s “process technology and design engineering teams are working closely to ease
`
`process design complexity and balance schedule, performance, power and cost,” assuring
`
`investors that “[w]e are on track to launch our first 7-nanometer-based product . . . in 2021, 2
`
`years after the launch of 10-nanometer.” Defendant Swan also represented to investors that Intel
`
`could achieve production of its seven-nanometer chip more quickly and efficiently than its 10-
`
`nanometer chip because “there’s less complexity” in the design rules.
`
`52.
`
`On December 3, 2019, Defendant Swan, representing Intel, presented at the
`
`Credit Suisse Technology, Media and Telecom Conference. During the conference, an analyst
`
`questioned why Intel was so confident in getting back to a 2 to 2.5 year cadence in developing
`
`and producing its seven-nanometer chip, despite the challenges and delays the Company faced
`
`with its 10-nanometer chip. In response, Defendant Swan stated that Intel had “learn[ed] from
`
`the past” and emphasized that “we didn’t start [on seven-nanometer] yesterday. We started it
`
`several years ago and we monitor performance on density, on functionality” and “we feel pretty
`
`good about getting to a 2, 2.5-year cadence and launching our first 7-nanometer product in the
`
`fourth quarter of 2021.”
`
`53.
`
`On December 10, 2019, Defendant Renduchintala represented Intel during a
`
`presentation at the UBS Global TMT Conference. During the conference, an analyst asked that
`
`“[g]iven the issues that you’ve had on 10, which have been quite public, can you talk about what
`
`15
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 16 of 33 PageID #: 16
`
`you learned that might give us more confidence on 7?” In response, Defendant Renduchintala
`
`stated that the Company had “learned a number of really, really crucial lessons” from the
`
`challenges it faced in the development and production of its 10-nanometer technology.
`
`Defendant Renduchintala also emphasized that those lessons “have been integrated into our
`
`approach on 7” and assured investors that “we’re making good progress on 7 as a result of that”
`
`and “we’ll see our first 7-nanometer product shipping in 2021 with a full portfolio in 2022.”
`
`54.
`
`On January 23, 2020, Intel held its fourth quarter and full fiscal year 2019 earnings
`
`call. During the call, Defendant Swan stated that “[o]ur process technology execution continues
`
`to improve” and reassured investors that “[o]ur 7-nanometer process remains on track to deliver
`
`our lead 7-nanometer product, Ponte Vecchio, at the end of 2021.”
`
`55.
`
`The next day, on January 24, 2020, Intel filed with the SEC its annual report on
`
`Form 10-K for the fourth quarter and full fiscal year 2019. The Form 10-K was signed by
`
`Defendants Swan, Davis, Goetz, Henry, Ishrak, Lavizzo-Mourey, Liu, Smith, Wilson, and Yeary
`
`and contained certifications by Defendants Swan and Davis that attested to the purported
`
`accuracy and completeness of the Form 10-K. In the 10-K, the Company emphasized that, unlike
`
`many other semiconductor companies, Intel manufactures its products in its own manufacturing
`
`facilities and touted its “in-house manufacturing as an important advantage” over its competitors.
`
`The 10-K also stated that “[o]ur ability to optimize and apply our manufacturing expertise to
`
`deliver more advanced, differentiated products is foundational to our current and future success.”
`
`In addition, the 10-K reassured investors that “[w]e are on track to deliver our first 7nm-based
`
`product . . . at the end of 2021” and “[w]e are approaching next-generation process nodes with a
`
`focus on striking an optimal balance between schedule, performance, power, and cost and will
`
`continue to drive intra-node advancement.”
`
`16
`
`
`
`Case 1:20-cv-01635-UNA Document 1 Filed 12/01/20 Page 17 of 33 PageID #: 17
`
`56.
`
`The Company’s 10-K acknowledged that most of Intel’s competitors rely on third-
`
`party foundries, such as TSMC, to manufacture their semiconductor components and
`
`products, and represented that Intel faced purported risks with regard to its timely
`
`introduction of new manufacturing
`
`technologies with sufficient manufacturing yields.
`
`Specifically, the 10-K stated that “to
`
`the extent we do not
`
`timely
`
`introduce new
`
`manufacturing process
`
`technologies
`
`that
`
`improve
`
`transistor density with sufficient
`
`manufacturing yields and operational efficiency, rela