In re: Intel Corp. Securities Litigation, No. 5:2020cv05194 - Document 86 (N.D. Cal. 2023)

Court Description: ORDER Granting 56 Motion to Dismiss. Signed by Judge Edward J. Davila on 3/31/2023. (ejdlc3, COURT STAFF) (Filed on 3/31/2023)

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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 IN RE: INTEL CORP. SECURITIES LITIGATION 8 Case No. 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 9 Re: ECF No. 56 10 United States District Court Northern District of California 11 Lead Plaintiffs KBC Asset Management NV and SEB Investment Management AB 12 13 (collectively, “Lead Plaintiffs”) bring this putative class action against Defendants Intel 14 Corporation (“Intel”), former Intel CEO Robert H. Swan, Intel CFO George S. Davis,1 and former 15 Intel Chief Engineering Officer Dr. Venkata S.M. Renduchintala (collectively, the “Individual 16 Defendants,” and with Intel, “Defendants”), alleging violations of §§ 10(b) and 20(a) of the 17 Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. See Consolidated 18 Compl. (“Compl.”), ECF No. 53. Lead Plaintiffs bring this action individually and on behalf of 19 those who purchased or acquired Intel common stock from October 25, 2019 through October 23, 20 2020 (the “Class Period”). Id. at 1. Before the Court is Defendants’ motion to dismiss under Federal Rules of Civil Procedure 21 22 8(a), 9(b), and 12(b)(6) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”). 23 Mot. to Dismiss (“Mot.”), ECF No. 56, at 1. The Court finds this matter suitable for decision 24 without oral argument. Civil L.R. 7-1(b). Having considered the parties’ submissions, the Court 25 GRANTS Defendants’ motion to dismiss with leave to amend. 26 1 27 28 Davis was identified as a current officer of Intel at the time the Consolidated Complaint was filed. Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 1 BACKGROUND 1 2 I. Intel is a semiconductor company that designs and manufactures microprocessors and 3 United States District Court Northern District of California STATEMENT OF FACTS2 4 other semiconductor products for use in computers, data center servers, communications devices, 5 and other digital electronic devices. Compl. ¶ 20, 26. It is headquartered in Santa Clara, 6 California, and its stock trades on NASDAQ under the symbol “INTC.” Id. ¶ 20. 7 The semiconductor industry is marked by two features relevant to this case. First, 8 semiconductor companies can broadly be characterized as occupying one of two roles: design or 9 fabrication. Id. ¶ 32. Companies that focus only on chip design and marketing employ what is 10 called a “fabless” business model because those companies do not own chipmaking facilities 11 called “fabs.” Id. ¶¶ 29, 32. On the other hand, companies that only fabricate chips are called 12 “foundries,” and fabless companies will send their chip designs to foundries to manufacture on 13 their behalf. Id. ¶ 32. Some companies, however, perform both design and fabrication functions 14 and are called “integrated device manufacturers,” or “IDMs.” Intel is (mostly) such an IDM. Id. 15 ¶ 29. For its leading-edge chips—those based on the most current, advanced technology—Intel 16 both designs and fabricates the chips in-house. Id. ¶¶ 29, 31. For older, trailing-edge chips and 17 non-Intel designed chips obtained from acquisitions of other companies, Intel outsources some 18 production to foundries. Id. ¶ 31. This business model allows Intel to realize efficiencies by 19 avoiding intermediaries, to coordinate manufacturing capacity with demand, and to better 20 safeguard its intellectual property by keeping its knowledge and expertise in-house. Id. ¶ 30. The second key feature is that expectations and industry economics are closely tied to an 21 22 assumption known as Moore’s Law, which stems from an observation by Intel co-founder Gordon 23 Moore. In the 1960s, Moore observed that every two years, the number of transistors that could 24 be fabricated in a given area of silicon wafer would double, meaning that chips would grow 25 26 27 28 2 For purposes of this motion to dismiss, the Court accepts as true the allegations of the Consolidated Complaint. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 2 1 smaller at a rapid rate. Id. ¶ 39. He forecasted that this trend would continue, and history has 2 borne out his prediction. Id. ¶¶ 39, 41. Because development has kept pace with Moore’s Law, 3 the semiconductor industry and its analysts now expect chip sizes to shrink in accordance with the 4 cadence of Moore’s Law. Id. ¶ 39. The upshot for semiconductor companies is that the first to 5 develop technology for the next smaller chip size—known as a “node,” “process,” or “process 6 node”—gains a significant advantage and can capture a large majority of the revenues for that chip 7 size. Id. ¶ 40. Up through 2011 with the release of its 22nm chip, Intel’s chip development had 8 closely followed the progression predicted by Moore’s Law, and Intel was a full node ahead of its 9 competitors. Id. ¶ 41. United States District Court Northern District of California 10 Although Intel matched the pace of Moore’s Law through 2011, it encountered challenges 11 when moving from the 22nm node to the 14nm node. Id. ¶¶ 41-42. Despite planning to begin 12 production of 14nm chips in 2013, Intel was unable to market the chips in large quantities until 13 2015. Id. ¶ 42. It encountered similar setbacks with the next process node. Id. ¶ 43. Despite the 14 cadence of Moore’s Law calling for 10nm chips in 2015, Intel delayed the launch of its 10nm 15 chips to the second half of 2017. Id. Later, it pushed back launch even further into 2019. Id. 16 ¶¶ 43, 45. While Intel dealt with those delays, its competitors began to catch up. By 2018, one of 17 its foundry competitors, TSMC, introduced its 7nm process as Intel continued to work on its 10nm 18 process. Id. ¶ 47. TSMC also formed an alliance with AMD, one of Intel’s fabless chip design 19 competitors, allowing AMD to develop increasingly sophisticated chips and seize market share 20 from Intel. Id. ¶¶ 48-51. In an effort to regain ground, Intel hired Jim Keller, a well-regarded 21 microprocessor architect, in April 2018. Id. ¶ 55. 22 It was against this backdrop of increased competition that Intel began to discuss its 23 upcoming 7nm process with the market. Beginning in May 2019 at an investor meeting, Intel 24 executives, including Swan and Renduchintala, projected that Intel would launch its first 7nm 25 product, known as Ponte Vecchio, in 2021. Id. ¶¶ 60, 62. Renduchintala explained that Intel had 26 learned from the missteps surrounding its 10nm process and that those lessons would allow Intel 27 to meet its anticipated schedule. Id. ¶ 61. Throughout the Class Period, Defendants repeatedly 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 3 1 affirmed that Intel’s 7nm process was “on track,” reassuring markets that it would meet its 2021 2 timeline by implementing lessons learned from the 10nm process. Id. ¶¶ 68, 71-72; see also id. 3 ¶¶ 147, 149, 153, 156, 163, 167, 172, 176, 187. United States District Court Northern District of California 4 But, according to Lead Plaintiffs, the 7nm process was not “on track” and had fallen 5 behind schedule while Defendants were making those statements. On December 12, 2019, the 6 technology news website SemiAccurate published an article by Charlie Demerjian reporting that 7 Intel’s internal product roadmaps showed some of its 7nm products were already delayed by at 8 least a year. Id. ¶¶ 75, 77; Decl. of Gina F. Elliott (“Elliott Decl.”), ECF No. 57, Ex. 14. A former 9 Senior Director of Marketing at Intel, FE 1, likewise explained, by December 2019, it was 10 understood at Intel that “yea, 7nm is messed up.” Id. ¶ 78. FE 1 also reported that, before 11 December 2019, Intel’s former VP of Marketing told FE 1 the 7nm process was one or two years 12 behind schedule. Id. A former Intel Development Technician and Operations Manager, FE 2, 13 noted that Intel was having yield problems with its 7nm process, meaning that too many of the 14 fabricated chips were defective. Id. ¶ 79. Further, according to another SemiAccurate article by 15 Demerjian, on March 31, 2020, Intel missed a hard tapeout deadline for Ponte Vecchio. Id. ¶ 86. 16 Allegedly, the result of missing the deadline was that Intel would be unable to meet its goal of 17 launching Ponte Vecchio in 2021. Id. ¶¶ 84-87. Moreover, leaks of what appeared to be internal 18 Intel slides from May 2020, which were partially in Russian, indicated that some of Intel’s other 19 7nm products were not scheduled to arrive until 2023. Id. ¶¶ 90-91. 20 FE 1 disclosed that by May or June 2020, Keller, the microprocessor architect hired by 21 Intel in 2018, had come into conflict with Renduchintala over delays to the 7nm process. Id. ¶ 93. 22 Keller purportedly approached Swan to protest what he viewed as Renduchintala’s refusal to 23 address problems with development, and he threatened to resign if Swan did not act. Id. When 24 Swan refused Keller’s requests, Keller advised the Intel Board of Directors that neither Swan nor 25 Renduchintala should remain in their roles. Id. ¶¶ 93-94. Shortly thereafter, on June 11, 2020, 26 Keller departed Intel due to what were announced as “personal reasons.” Id. ¶ 95. Analysts 27 reacted with concern, writing that Keller’s departure “is a big deal and suggests that whatever he 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 4 1 was implementing at Intel was not working or the old Intel guard did not want to implement it,” 2 and interpreting the departure as a sign that “Intel’s processor and process node roadmaps are 3 going to be more in flux or broken than even we had expected.” Id. ¶ 96. Following the news, 4 Intel’s stock price fell by 0.6%, declining from a closing price of $59.70 per share on June 11, 5 2020, to a closing price of $59.33 per share on June 12, 2020. Id. ¶ 99. On July 23, 2020, Intel issued a press releasing announcing that its 7nm product schedule United States District Court Northern District of California 6 7 would be delayed approximately six months due to problems with yield, and Intel’s targets for 8 yield were approximately twelve months behind schedule. Id. ¶ 101. In Intel’s Q2 2020 earnings 9 call later that day, Swan also disclosed that Intel would utilize outside manufacturers to make 10 some of its leading-edge 7nm chips and that, for some time, it had been working on contingency 11 plans to allow for its chips to be manufactured by third-party foundries if the need arose. Id. 12 ¶¶ 103-04. Such contingency plans required Intel to design its chips to be made in both Intel and 13 non-Intel fabs, an undertaking that would have required eight to twelve months of design work per 14 a former Intel circuit design engineer, FE 3. Id. ¶ 106. Analysts responded negatively to the 15 news, lowering their target prices for Intel and assailing the 7nm delays as a failure. Id. ¶¶ 107-15. 16 Intel’s stock price also dropped 17.93% from a closing price of $60.40 per share on July 23, 2020, 17 to a closing price of $49.57 per share on July 27, 2020. Id. ¶ 116. 18 On October 22, 2020, Intel held its Q3 2020 earnings call in which Swan expanded on his 19 earlier statements about the outsourcing of manufacturing, stating that other 2023 products would 20 also be manufactured both in-house and externally. Id. ¶ 120. After the earnings call, Intel’s stock 21 price declined 10.57% from a closing price of $53.90 per share on October 22, 2020, to a closing 22 price of $48.20 per share on October 23, 2020. Id. ¶ 126. Both Renduchintala and Swan departed Intel following these disclosures—Renduchintala 23 24 on July 27, 2020, and Swan on February 15, 2021. Id. ¶¶ 117, 128. 25 II. 26 CHALLENGED STATEMENTS Lead Plaintiffs challenge the below statements, which are presented chronologically. The 27 Court numbers each statement for ease of reference, and it bolds and italicizes portions of the 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 5 1 statements as they were emphasized in the Consolidated Complaint, which presumably was 2 intended to identify the portions of statements that are alleged to be false or misleading: 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 October 24, 2019 – Q3 2019 Earnings Call Statement 1: “As we discussed at the May [2019] investor meeting, we are accelerating the pace of process node introductions and moving back to a 2- to 2.5-year cadence. Our process technology and design engineering teams are working closely to ease process design complexity and balance schedule, performance, power and cost. We are on track to launch our first 7-nanometer-based product, a data center-focused discrete GPU, in 2021, 2 years after the launch of 10-nanometer.” Compl. ¶ 132 (alteration in original). Statement 2: “Last – back in our Analyst Day, we tried to go through this in quite a bit of detail, both, one, kind of our lessons learned coming out of the challenges we had with 10 and how we’re capturing those lessons learned as we think about the next 2 generations. . . .” Id. ¶ 134. Statement 3: “And we indicated that our first product will be 2 years from this quarter, so fourth quarter of 2021, our first 7-nanometer product will come out. And our expectation is we’ll get back on a 2-year cadence in 7 and beyond. So lots of learnings out of 10nanometer that we’ve incorporated. And we said back in May and we reiterated today, we expect to be back to a 2- to 2.5-year cadence going forward, at least for the next few nodes.” Id. ¶ 134. Statement 4: “Yes. I mean, first to the comment, yes, the – nothing new about process relative to what we said at Analyst Day, ramp 10, 2-year cadence for 7 and our expectations that the cadence going forward will be more like 2- to 2.5-year time frame. So intently focused on 10 now and 7 for the product you mentioned in the fourth quarter. So we’re investing to recapture process leadership going forward.” Id. ¶ 136. Statement 5: “At the same time, we’re going to be extremely openminded about how do we ensure that we’re building the best products, and where we build them is something that we’ll always evaluate. I think, as you know with the other foundry players, they’ve been a source of our capacities over the years. And our expectation is, to the extent that they can do something to support our growth better and/or for peak kind of demands, we’re always going to look at how do we evaluate the opportunity set that’s going to position us best to meet our customers’ demand for the growing diversity of products that we have in our portfolio.” Id. ¶ 136. Statement 6: “We continue to add capacity in 14-nanometer and began adding capacity at 7-nanometer as well. So we’re very focused on getting the capacity in place that will allow us to take the word shortage out of our quarterly discussions.” Id. ¶ 137. Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 6 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 November 4, 2019 – Davis Interview with Barron’s Statement 7: “[W]e’re moving to a two to two and a half year cadence on the next nodes. So we’re pulling in the spending on 7 nanometer, which will start up in the second half of 2021 . . . .” Id. ¶ 147. November 4, 2019 – Benchmark Analyst Report Statement 8: Benchmark wrote, “[Intel] said that . . . capital efficiency will begin to improve at a faster rate at the 7nm node as EUV is inserted into the manufacturing process. [Intel’s] mindset at this point appears to be ‘hit the mark,’ meaning that the Company expects to do whatever it takes to meet product schedule expectations. To that end, [Intel] remains committed to node transitions on a 2 to 2.5 year cadence. Interestingly, [Intel] said that it has no interest in being a Foundry any longer as TSMC’s business model is very different from [Intel’s] and [Intel] expects its IDM model to be intact for the foreseeable future. On the flip-side, [Intel] does not seem very interested in outsourcing capacity needs.” Id. ¶ 149 (alterations in original). December 3, 2019 – Credit Suisse Conference Statement 9: “Yes, I mean it’s – maybe start with a function of scar tissue. And scar tissue meaning the challenges that we had and the learnings we got from the 22 nanometer to 14 nanometer transition, the 14 nanometer to 10 nanometer transition. In light of that, how are you learning from the past that builds your confidence in the future. * * * So, along the way, we – based on our confidence of past performance, we set a higher and higher bar and it didn’t work effectively. Just took too long. And now, good news is we feel like we’ve got a fairly well dialed in. The bad news is it took too long. . . .” Id. ¶ 153. Statement 10: “Secondly, we’re not going to try to do 2.4 scaling or 2.7 scaling. As we think about 7- nanometer, we put 2.0 back in line with historical trends. As we think about 5-nanometer, which would be our competitor’s 3-nanometer, it’s more like 2.0 we’re thinking about. So, we’re not putting as much challenge on the fab and not taking on so much complexity in design rules, which – the more there are the more complicated – the more complicated it is. So we’re capturing these learnings from the past and are applying them going forward.” Id. ¶ 153. Statement 11: “The third thing, to your point is, with 7-nanometer, one of the benefits of, I should say, of 10-nanometer taking long is we’ve been playing with EUV for a while. So, this is a new generation of technology. We’ve been playing with it for a while. While 10-nanometer has took long, our teams including our tool provider had lots of time to work through the inherent challenges of bringing the new technology and list them online.” Id. ¶ 153. 27 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 7 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Statement 12: “So, on the combination of learnings from the past, capturing those learnings, how do we think about those going forward, applying them and then tracking along the way. So 7nanometers we didn’t start it yesterday. We started several years ago and we monitor performance on density, on functionality and based on kind of where we are today, we feel pretty good about getting to a two, 2.5 year cadence and launching our first 7nanometer product in the fourth quarter of 2021.” Id. ¶ 153. December 10, 2019 – UBS Conference Statement 13: “But first of all, as somebody who regards themselves of the technologies first and foremost, you go through your career very much understanding that, your most seminal learnings come from the programs or the activities you were part of that didn’t go according to plan. And with 10 nanometers, I think the company has learned a number of really, really crucial lessons that I think sets us up to be a much, much more mature decision-making organization going forward.” Id. ¶ 156. Statement 14: “I would say, on 10, we learned four key lessons. The first is really to balance the pursuit of scaling and cost together with schedule predictability power and performance. And Intel was very focused on continuing to achieve a cost per transistor curve, that complied with the Moore’s Law cadence of every 2 years. * * * So going forward on 7, we’ve taken a much more pragmatic approach of basically making sure the scaling risk we take doesn’t perturbate our ability to deliver to schedule and to power and performance. So as we’ve said in the past, we’ve moved more to a scaling factor around 2x between 10 and 7.” Id. ¶ 156. Statement 15: “The other thing that we learned and this was very much a lesson we learned on 14 is to continue to harvest intra-node product optimizations or intra-node process optimizations. . . .” Id. ¶ 156. Statement 16: “The third [lesson learned] is to maintain a mix of nodes, going forward as well not out of one node into another node in full gusto, but essentially take a much more gradual and measured migration between nodes, because not every part of technology that we deliver in an SoC benefits proportionately from logic scaling. So, for concerns of time to market, power and performance and margin maintaining a mix of nodes going forward in a heterogeneous product construction approach is really important.” Id. ¶ 156 (alteration in original). Statement 17: “And the final lesson, probably one of the most important lessons is to make it easy and fast for our design teams to be able to migrate through intra-node transitions. For us one of the key things we’ve really done is to make sure that as we’ve delivered process goodness, we’ve also made that much easier for our design teams to pick up and run with so that we can get much greater velocity in our product cadence. So all of those have been integrated into our approach on 7. And I think we’re making good progress on 7 as a result of that. And as we’ve announced previously, we’ll see our Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 8 first 7 nanometer product shipping in 2021 with a full portfolio in 2022.” Id. ¶ 156. 1 2 Statement 18: “[T]he GPGPU, or GPU in general benefits from the scaling and performance and power advantage that come with the transition from 10 to 7 as significantly as for example as CPU. And thirdly, [a] GPGPU by nature of its architecture and redundancy in the architecture makes it a lot more amenable to being a good ramp vehicle in the early phases of a new node where defect density is still being pushed down to its absolute minimum. But there won’t be a large gap between the launch of our first product in 7 and the rest of our portfolio. So you can expect a full portfolio of products across our entire product portfolio within a year of that first product launch.” Id. ¶ 156 (alterations in original). 3 4 5 6 7 8 Statement 19: “Yeah, well, first of all, I think we regard companies like TSMC and Samsung as strategic partners. Intel’s had a long history, over two decades of history of working with the foundry ecosystem. And in fact, something like 20% to 25% of the wafer volume that we source comes from outside of the Company and we don’t see that changing in any major fashion going forward.” Id. ¶ 157. 9 10 United States District Court Northern District of California 11 12 Statement 20: “But that said, we still believe that there is tremendous value in the IDM approach we have going forward. And if you look at the assets that Intel brings to bear, we have process technology, we have advanced packaging technology; we have memory technology; we have interconnect technology, we also have an incredibly important franchises at CPU, which is a cornerstone IP; we’re building a portfolio of what we call xPU architectures like the GPU, the FPGA, the neural network processes. And we’re integrating that with really strong focus on both security and harmonizing software. And if you integrate all of that together, you get an incredibly potent innovation environment, that’s very difficult to replicate in a fabless foundry partnership. So while we think, there is great value engaging with and learning from the external foundry ecosystem, we still think that there is tremendous generate – a value we can generate by continuing to be an IDM. So we play those positions intelligently and pragmatically to deliver the best portfolio we can for our customers.” Id. ¶ 157. 13 14 15 16 17 18 19 20 21 January 23, 2020 – Q4 2019 Earnings Call 22 Statement 21: “Our 7-nanometer process remains on track to deliver our lead 7-nanometer product, Ponte Vecchio, at the end of 2021, with CPU products following shortly after in 2022.” Id. ¶ 163. 23 24 /// 25 /// 26 /// 27 /// 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 9 January 24, 2020 – 2019 Form 10-K3 1 Statement 22: “We are accelerating the pace of process node introductions and moving back to a 2- to 2.5-year cadence. We are on track to deliver our first 7nm-based product, a discrete GPU, at the end of 2021.” Id. ¶ 167. 2 3 4 Statement 23: “We are an IDM. Unlike many other semiconductor companies, we primarily design and manufacture our products in our own manufacturing facilities, and we see our in-house manufacturing as an important advantage. We continue to develop new generations of manufacturing process technology as we seek to realize the benefits from Moore’s Law. Realizing Moore’s Law results in economic benefits as we are able to either reduce a chip’s cost as we shrink its size, or increase functionality and performance of a chip while maintaining the same cost with higher density. This makes possible the innovation of new products with higher performance while balancing power efficiency, cost, and size to meet customers’ needs. Our ability to optimize and apply our manufacturing expertise to deliver more advanced, differentiated products is foundational to our current and future success.” Id. ¶ 167. 5 6 7 8 9 10 United States District Court Northern District of California 11 12 Statement 24: “We are on track to deliver our first 7nm-based product, a data center-focused discrete GPU, at the end of 2021. We 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.” Id. ¶ 167. 13 14 15 March 2, 2020 – Morgan Stanley Conference 16 Statement 25: “But so I feel like we’re in the 10-nanometer node. It’s important that we’re continuing to see yield improvements ratably over the time period. But as we said back in our Analyst Day in May of ‘19, look this isn’t going to be the best node that Intel has ever had. It’s going to be less productive than 14, less productive than 22, but we’re excited about the improvements that we’re seeing and we expect to start the 7-nanometer period . . . with a much better profile of performance over that starting at the end of ‘21.” Id. ¶ 172. 17 18 19 20 21 Statement 26: “Yeah, I think we feel very good about where the road map is going. . . . we feel like we’re starting to see the acceleration on the process side that we have been talking about to get back to parity in the 7-nanometer generation and regain leadership in the front down there.” Id. ¶ 172. 22 23 24 25 Lead Plaintiffs also allege that Swan and Davis’s Sarbanes-Oxley (“SOX”) certification was false and misleading because Intel’s Form 10-K contained false and misleading statements. Compl. ¶¶ 168, 171. Because Lead Plaintiffs’ theory of falsity for the SOX certification is predicated on the falsity of other challenged statements in Intel’s Form 10-K, the certification will rise or fall with those other statements, and the Court does not address it separately. 3 26 27 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 10 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 April 23, 2020 – Q1 2020 Earnings Call Statement 27: “On the second part of your question, I’d go back to the commentary that George provided back at our Analyst Day in the spring, which is, obviously, when we transition from a mature node to a new node, margins tend to come down. We indicated that we plan to get back on a 2- to 2.5-year cadence, which means in 2021, we’ll be ramping 10-nanometer even more while we’re investing in 7-nanometer that we anticipate having in the fourth quarter of 2021. So those dynamics of – from a mature node to a new node, impacts the gross margins of the business, but we feel like it’s – we’re well on track from the plans we laid out and feel pretty good about a dynamite first quarter and an outlook for the second quarter in line or better than what we expected.” Id. ¶ 176. June 11, 2020 – Press Release Regarding Keller’s Departure Statement 28: “Today, Intel announced that Jim Keller has resigned effective June 11, 2020, due to personal reasons. Intel appreciates Mr. Keller’s work over the past two years helping them continue advancing Intel’s product leadership and they wish him and his family all the best for the future. Intel is pleased to announce, however, that Mr. Keller has agreed to serve as a consultant for six months to assist with the transition.” Id. ¶ 183. June 11, 2020 – Deutsche Bank Analyst Report Statement 29: Deutsche Bank reported that Swan and Davis stated they were “[l]ooking forward to 7nm, [Intel]’s time-line remains unchanged with a late 2021 launch.” Id. ¶ 184 (alterations in original). June 25, 2020 – Statement to Consumer Electronics Daily Statement 30: Consumer Electronics Daily published an article stating, “[a]n Intel spokesperson emailed Wednesday [i.e., June 24, 2020] that its 7-nanometer process ‘remains on track’ with first products due by the end of 2021.” Id. ¶ 187 (alterations in original). These statements can be sorted into four general categories, though some fall under more than one category: 1. Statements regarding Intel’s 7nm development timeline (Statements 1, 3, 4, 7, 8, 12, 17, 18, 21, 22, 24-27, 29, 30); 2. Statements regarding how Intel incorporated “lessons learned” from its 10nm process into development of its 7nm process (Statements 2, 3, 9-17); 26 3. Statements that Intel remained an IDM (Statements 4-6, 8, 19, 20, 23); and 27 4. The statement about Keller’s departure (Statement 28). 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 11 REQUEST FOR JUDICIAL NOTICE 1 2 I. Ordinarily, a court may not examine materials outside the pleadings when considering a 3 United States District Court Northern District of California LEGAL STANDARD 4 motion to dismiss for failure to state a claim. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 5 2001). There are two exceptions to this general rule. First, courts may take judicial notice of 6 certain facts that are “not subject to reasonable dispute” because they are “generally known” or 7 “can be accurately and readily determined from sources whose accuracy cannot reasonably be 8 questioned.” Fed. R. Evid. 201(b). Second, the doctrine of incorporation by reference permits 9 courts to treat a document as if it were “part of the complaint itself,” but only if the complaint 10 “refers extensively to the document or the document forms the basis of the plaintiff’s claim.” 11 Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018) (citation omitted). 12 The Ninth Circuit has cautioned against the use of judicial notice or incorporation by 13 reference to raise expansive factual disputes at the pleading stage. See Khoja, 899 F.3d at 998-99, 14 1003. A court may take judicial notice of the existence and contents of a public record but may 15 not take notice of the truth of any disputed facts within that record. Id. at 999-1000. Likewise, a 16 court may generally “assume [an incorporated document’s] contents are true for purposes of a 17 motion to dismiss under Rule 12(b)(6),” id. at 1003 (alteration in original) (quoting Marder v. 18 Lopez, 450 F.3d 445, 448 (9th Cir. 2006)), but should not assume the truth of facts in an 19 incorporated document “if such assumptions only serve to dispute facts stated in a well-pleaded 20 complaint.” Id. 21 II. DISCUSSION Defendants request judicial notice and incorporation by reference of Exhibits 1 through 26 22 23 to the Declaration of Gina F. Elliott. Req. for Judicial Notice (“RJN”), ECF No. 59. Lead 24 Plaintiffs do not object to the Court’s consideration of Exhibits 1, 7-9, 11-13, 19, 20, and 24-26.4 25 26 27 28 4 Though Lead Plaintiffs indicate that they object to Exhibit 19, their RJN briefing contains no argument about that exhibit. Consequently, the Court finds that any objection to Exhibit 19 is waived, and in any case, the exhibit is subject to incorporation by reference because it contains one of the challenged statements. See Khoja, 899 F.3d at 1002. Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 12 1 Resp. to RJN, ECF No. 65, at 1. However, Lead Plaintiffs object to Exhibits 2-6, 10, 14-18, and 2 21-23, acknowledging that the Court may take notice of the existence and contents of those 3 exhibits but challenging Defendants’ use of those exhibits as improper. Id. United States District Court Northern District of California 4 Exhibits 2-6 are certain of Intel’s SEC filings, which courts routinely take notice of in 5 federal securities actions. See Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1064 6 n.7 (9th Cir. 2008); Kipling v. Flex Ltd., No. 18-CV-02706-LHK, 2020 WL 2793463, at *7 (N.D. 7 Cal. May 29, 2020). Lead Plaintiffs argue, though, that the Court should decline to take judicial 8 notice because the exhibits are irrelevant and do not contain any challenged statement. Resp. to 9 RJN at 3-4. Their argument is unavailing. The PSLRA extends safe harbor protections to oral 10 forward-looking statements that identify cautionary language in readily available written 11 documents. 15 U.S.C. § 78u-5(c)(2)(B). Each of Exhibits 2-6 contains cautionary language 12 referenced by oral statements which Lead Plaintiffs challenge in this action, so the exhibits are 13 relevant to the Court’s analysis of whether safe harbor protections apply. See, e.g., Elliott Decl., 14 Ex. 7 at 2 (referring to Exhibit 4, which in turn refers to Exhibit 2). The Court will therefore 15 consider Exhibits 2-6 but will not take notice of any disputed facts. 16 Exhibits 14-16 are articles from SemiAccurate that Lead Plaintiffs cite in their complaint 17 to establish the falsity of several challenged statements. See Compl. ¶¶ 77, 86, 91. These exhibits 18 are both judicially noticeable as publicly available articles, Heliotrope Gen., Inc. v. Ford Motor 19 Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999), and incorporated by reference as the basis for Lead 20 Plaintiffs’ allegations of falsity. See Khoja, 899 F.3d at 1002. Lead Plaintiffs object to 21 Defendants’ use of the exhibits, arguing that Defendants are improperly citing the exhibits to 22 argue SemiAccurate is an unreliable source. Resp. to RJN at 7-8. As the Court discusses in more 23 detail below, it is appropriate for a court to assess the reliability of news articles under the 24 PSLRA’s heightened pleading standard, and the context of the full articles is relevant to that 25 assessment. See In re McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248, 1272 (N.D. Cal. 26 2000) (requiring a newspaper article to contain “numerous factual particulars” and indications of 27 “an independent investigative effort” before crediting the article for purposes of a scienter 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 13 1 analysis). Thus, the Court considers Exhibits 14-16 for the purpose of determining the reliability 2 of the SemiAccurate articles, but it does not assume the truth of facts within those exhibits. 3 Exhibit 17, which contains pages from the SemiAccurate website that Lead Plaintiffs do 4 not cite in their complaint, does not serve the same purpose. While considering Exhibits 14-16 5 would provide relevant context as to their reliability, and incorporation by reference of those 6 articles helps to avoid selective citation, see Khoja, 899 F.3d at 1002, the uncited webpages in 7 Exhibit 17 are too far removed from the cited articles to function as context. Rather, Exhibit 17 8 creates a factual dispute over Lead Plaintiffs’ allegations of reliability, see Compl. ¶¶ 75-76, and 9 therefore the Court will not consider Exhibit 17. Exhibits 10, 18, and 21-23 are the remaining exhibits which Lead Plaintiffs object to. United States District Court Northern District of California 10 11 They consist of a conference transcript, online article, and analyst reports, all of which are subject 12 to judicial notice. See In re Facebook, Inc. Sec. Litig., 477 F. Supp. 3d 980, 1009 (N.D. Cal. 13 2020) (transcripts); Heliotrope, 189 F.3d at 981 n.18 (articles); Costanzo v. DXC Tech. Co., No. 14 19-cv-05794-BLF, 2020 WL 4284838, at *3-4 (N.D. Cal. July 27, 2020) (analyst reports). 15 Exhibits 10 and 18 are also subject to incorporation by reference as sources of Lead Plaintiffs’ 16 challenged statements or allegations of falsity. See Compl. ¶¶ 91-92, 153; Khoja, 899 F.3d at 17 1002. Once again, though, Lead Plaintiffs object to how Defendants use these exhibits in their 18 motion. Resp. to RJN at 4-5, 8-12. Such objections only limit how the Court may use these 19 documents; they do not restrict the Court’s ability to take notice of or incorporate the documents. 20 See Bos. Ret. Sys. v. Uber Techs., Inc., No. 19-cv-06361-RS, 2020 WL 4569846, at *3 (N.D. Cal. 21 Aug. 7, 2020). The Court will consider Exhibits 10, 18, and 21-23 for the purpose of showing 22 what information was available to the stock market, but not for the truth of any fact asserted. Accordingly, the Court takes notice of and/or incorporates by reference all exhibits 23 24 attached to the Elliott Declaration except for Exhibit 17. MOTION TO DISMISS 25 26 27 I. LEGAL STANDARD To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must plead each claim with 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 14 1 enough specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon 2 which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). A bare 3 recital of the elements of a claim, supported only with conclusory allegations, is inadequate. 4 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Rather, the complaint must contain sufficient factual 5 allegations to allow a court to reasonably infer that the defendant is liable. Id. United States District Court Northern District of California 6 Securities fraud cases must also meet the higher bar set by the particularity requirements of 7 Rule 9(b) and the PSLRA. Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 604 (9th 8 Cir. 2014). Rule 9(b) requires a plaintiff alleging fraud to plead with particularity the 9 circumstances constituting fraud. Fed. R. Civ. P. 9(b). Specifically, a plaintiff must plead the 10 “who, what, when, where, and how” of the alleged fraud. Kearns v. Ford Motor Co., 567 F.3d 11 1120, 1124 (9th Cir. 2009) (citation omitted). The PSLRA demands even more, requiring a 12 plaintiff “to state with particularity both the facts constituting the alleged violation and the facts 13 evidencing scienter.” In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869, 876 (9th Cir. 2012). To 14 plead falsity, a securities plaintiff must “specify each statement alleged to have been misleading 15 [and] the reason or reasons why the statement is misleading.” Id. at 877 (quoting 15 U.S.C. § 78u- 16 4(b)(1)). To plead scienter, the plaintiff must “state with particularity facts giving rise to a strong 17 inference that the defendant acted with the required state of mind.” Id. (quoting 15 U.S.C. § 78u- 18 4(b)(2)(A)). An inference of scienter must be more than plausible, it must be “cogent and at least 19 as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & 20 Rights, Ltd., 551 U.S. 308, 314 (2007). 21 At the pleading stage, the Court accepts all factual allegations as true and construes the 22 pleadings in the light most favorable to the plaintiff. Reese, 643 F.3d at 690. The Court is not 23 required to accept as true “allegations that are merely conclusory, unwarranted deductions of fact, 24 or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 25 (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001), amended on other 26 grounds, 275 F.3d 1187 (9th Cir. 2001)). 27 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 15 1 2 SECTION 10(B) AND RULE 10B-5 To state a claim under Section 10(b) and Rule 10b-5, a plaintiff must allege “(1) a material 3 misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the 4 misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the 5 misrepresentation or omission; (5) economic loss; and (6) loss causation.” In re Quality Sys., Inc. 6 Sec. Litig., 865 F.3d 1130, 1140 (9th Cir. 2017) (quoting Halliburton Co. v. Erica P. John Fund, 7 Inc., 134 S. Ct. 2398, 2407 (2014)). Forward-looking statements “may still be shielded from 8 liability by the ‘safe harbor’ provision of the PSLRA” even if all elements of a Section 10(b) claim 9 are pleaded. Quality Sys., 865 F.3d at 1141; 15 U.S.C. § 78u-5(c). 10 United States District Court Northern District of California II. In their motion to dismiss, Defendants argue that many of the challenged statements fall 11 under the PSLRA safe harbor, and that Lead Plaintiffs have failed to plead actionable 12 misstatements or omissions, a strong inference of scienter, and loss causation. Mot. at 1. 13 A. 14 Under the PSLRA safe harbor, a forward-looking statement is not actionable under federal 15 securities law if it is (a) identified as forward-looking and accompanied by meaningful cautionary 16 language or (b) was made without actual knowledge that it was false or misleading. 15 U.S.C. 17 § 78u-5(c)(1). The safe harbor operates disjunctively, so a forward-looking statement is protected 18 if either condition is met. Wochos v. Tesla, Inc., 985 F.3d 1180, 1190 (9th Cir. 2021) (citing 19 Quality Sys., 865 F.3d at 1141; In re Cutera Sec. Litig., 610 F.3d 1103, 1112-13 (9th Cir. 2010)). 20 For oral forward-looking statements, the safe harbor applies if the speaker or someone acting on 21 her behalf warns that actual results may differ, and she directs the audience to cautionary language 22 in a readily available written document. 15 U.S.C. § 78u-5(c)(2). 23 PSLRA Safe Harbor A statement is forward-looking if it is about “(1) financial projections, (2) plans and 24 objectives of management for future operations, (3) future economic performance, or (4) the 25 assumptions ‘underlying or related to’ any of these issues.” No. 84 Emp.-Teamster Joint Council 26 Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (citing 15 U.S.C. 27 § 78u-5(i)). A forward-looking statement may be mixed with statements of present or past fact. 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 16 1 In that case, the forward-looking aspects of the mixed statement are protected by the safe harbor, 2 but portions addressing the present or past are not. Quality Sys., 865 F.3d at 1142. The non- 3 forward-looking aspects of mixed statements are actionable only if they are “separable” from the 4 forward-looking aspects and contain a “concrete assertion concerning a specific current or past 5 fact” that “goes beyond the articulation of plans, objectives, and assumptions.” Wochos, 985 F.3d 6 at 1190-91 (cleaned up) (citations omitted) 7 1. 8 a. Forward-Looking Statements Defendants argue that all statements regarding Intel’s 7nm timeline are forward-looking. 9 United States District Court Northern District of California Statements Regarding Intel’s 7nm Development Timeline 10 Mot. at 10-12. The Court agrees. The statements which set forth Intel’s projected launch date for 11 its 7nm products, or which indicate Intel’s expectations of a two-year development cadence 12 between process nodes, are plainly forward-looking statements of plans and objectives. See 15 13 U.S.C. § 78u-5(i)(1)(B); Am. W. Holding Corp., 320 F.3d at 936. The remaining statements 14 asserting that Intel was “on track” to meet those goals are likewise forward-looking under Wochos. 15 985 F.3d at 1192. Lead Plaintiffs largely do not contest that statements about Intel’s 7nm timeline are 16 17 forward-looking, identifying only two statements that they consider to be about present fact: 18 Statement 26 (“we feel very good about where the [7nm] road map is going”) and Statement 29 19 (“[the 7nm] time-line remains unchanged”). Opp’n, ECF No. 64, at 12-13. In their view, these 20 are remarks about the present state of Intel’s roadmap and timeline rather than about Intel’s future 21 objectives.5 Id. However, Wochos considered and rejected this exact argument. The plaintiffs in 22 Wochos argued that “on track” statements were not forward-looking because they concerned the 23 present state of progress towards a goal. 985 F.3d at 1191. The court disagreed, finding the “on 24 track” statements to be forward-looking on the grounds that they simply reasserted previously 25 announced future objectives. Id. at 1192. That is so, the court explained, since an announced goal 26 5 27 28 Lead Plaintiffs also briefly argue that Statements 26 and 29 are mixed statements, but they do not identify any purported assertions of current or past fact other than those about Intel’s roadmap and timeline. Opp’n at 13. Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 17 1 “necessarily reflects an implicit assertion that the goal is achievable based on current 2 circumstances.” Id. As a result, “an unadorned statement” that a company will be able to achieve 3 its objective is “merely [an] alternative way[] of declaring or reaffirming the objective itself.” Id. 4 Statements 26 and 29 are such “unadorned statements” because they do no more than convey that 5 Intel’s 7nm launch goals are achievable under current circumstances, and they are therefore 6 forward-looking. 7 b. 8 i. Written Statements As statements about Intel’s 7nm timeline are forward-looking, they are protected under the 9 United States District Court Northern District of California Meaningful Cautionary Language 10 safe harbor if they are accompanied by meaningful cautionary language. The Court begins with 11 Statements 22 and 24, which are written statements in Intel’s 2019 Form 10-K. To be meaningful, 12 cautionary language must “identify[] important factors that could cause actual results to differ 13 materially from those in the forward-looking statement.” 15 U.S.C. § 78u-5(c)(1)(A)(i). These 14 factors must be “substantive company-specific warnings based on a realistic description of the 15 risks applicable to the particular circumstances.” Rodriguez v. Gigamon Inc., 325 F. Supp. 3d 16 1041, 1052 (N.D. Cal. 2018) (quoting In re Harman Int’l Indus., Inc. Sec. Litig., 791 F.3d 90, 102 17 (D.C. Cir. 2015)). But the cautionary language “does not need to warn of the ‘exact risk’ that 18 transpires.” Bodri v. GoPro, Inc., 252 F. Supp. 3d 912, 931 (N.D. Cal. 2017). Intel included extensive risk factors with its 2019 Form 10-K. Elliott Decl., Ex. 1 at 50-60. 19 20 As pertinent to the statements about Intel’s 7nm timeline, Intel warned that product delays could 21 occur and had occurred, that such delays could harm company performance, and that yields might 22 be low: 23 24 25 26 27 28 [T]o the extent we do not timely introduce new manufacturing process technologies that improve transistor density with sufficient manufacturing yields and operational efficiency, relative to competing foundry processes, we can face cost and product performance disadvantages. * * * We are not always successful or efficient in developing or implementing new process nodes and production processes. For Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 18 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 example, we experienced significant delays in implementing our 10nm process technology. . . . Risks inherent in the development of next-generation process technologies include production timing delays [and] lower-thananticipated manufacturing yields . . . . Production timing delays have at times caused us to miss customer product design windows, which can result in lost revenue opportunities and damage to our customer relationships. Furthermore, when the introduction of next-generation process nodes is delayed, including additional competitive features in our products can result in larger die size products, manufacturing supply constraints, and increased product costs. Lower manufacturing yields and longer manufacturing throughput times, compared to previous process nodes, can increase our product costs and adversely affect our gross margins . . . . In addition, as the die size of our products has increased and our manufacturing process nodes have shrunk, our products and manufacturing processes have grown increasingly complex and more susceptible to product defects and errata, which can also contribute to production timing delays and lower yields. From time to time, disruptions in the production process result from errors . . . which could affect the timing of production ramps and yields. . . . [T]o the extent we face delays in the timing of our product introductions, we could become less competitive and lose revenue opportunities, and our gross margin could be adversely affected . . . . 14 15 Id. at 51, 54-55. This cautionary language warns of the exact event that Lead Plaintiffs allege 16 Defendants concealed (the delay of Intel’s 7nm process) as well as the underlying cause and 17 “primary driver” of that event (poor yields). See Compl. ¶ 101. That is more than enough to be 18 meaningful. See In re Pivotal Sec. Litig., No. 3:19-cv-03589-CRB, 2020 WL 4193384, at *16 19 (N.D. Cal. July 21, 2020) (cautionary language that “addressed the very subjects Plaintiffs 20 challenge” was meaningful); Kipling, 2020 WL 2793463, at *12-13 (cautionary language was 21 meaningful when it discussed “operational difficulties [] of the same nature as the ones that 22 Plaintiff alleges rendered the forward-looking statements false”). 23 Lead Plaintiffs raise three arguments for why the cautionary language in Intel’s 2019 Form 24 10-K is not meaningful, but none of their arguments is availing. Their first two arguments—that 25 the risk factors are boilerplate, and that the risk factors arranged under the heading, “Changes in 26 Product Demand Can Adversely Affect Our Financial Results: We face significant competition,” 27 are irrelevant—may be quickly disposed of. Opp’n at 15. The risk factors identified above warn 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 19 1 of Lead Plaintiffs’ exact theory of falsity, so they are far from boilerplate. And the method by 2 which Intel organizes and labels its risk factors has no impact on whether the cautionary language 3 is meaningful. The risk factors above are clearly relevant, and the heading criticized by Lead 4 Plaintiffs does not otherwise cause any confusion about their meaning. United States District Court Northern District of California 5 The third argument requires more attention. Lead Plaintiffs argue that the cautionary 6 language cannot be meaningful because it “presented the risks as merely possible when they had 7 already materialized.” Id. at 15-16 (emphasis removed). While they are correct that cautionary 8 language may not be meaningful if it suggests that risks have not been realized when they have 9 already occurred, Washtenaw Cnty. Emps. Ret. Sys. v. Celera Corp., No. 5:10-cv-02604-EJD, 10 2012 WL 3835078, at *4 (N.D. Cal. Sept. 4, 2012), that is not what happened here. Intel’s risk 11 factors make clear that product delays, the very risk that Lead Plaintiffs allege to have 12 materialized, occurred in the past. Intel flagged that “[p]roduction timing delays have at times 13 caused us to miss customer product design windows.” Elliott Decl., Ex. 1 at 54. By disclosing 14 that delays “have at times” caused issues, Intel indicated that such delays had occurred before. 15 What is more, Intel identified a specific instance of product delays materially impacting its ability 16 to compete, noting that “we experienced significant delays in implementing our 10nm process 17 technology” and that “our delays in transitioning to this node occurred while third-party foundries 18 developed new, competitive process technologies. . . . which can help increase the competitiveness 19 of their products.” Id. In light of these disclosures, the Court concludes that Statements 22 and 24 20 are accompanied by meaningful cautionary language and so protected by the PSLRA safe harbor. 21 22 ii. Oral Statements The Court next turns to Defendants’ oral statements. Unlike for written statements, the 23 cautionary language accompanying oral statements does not need to identify specific risk factors. 24 15 U.S.C. § 78u-5(c)(2). Instead, forward-looking oral statements receive safe harbor protection if 25 they are accompanied by a general statement that results might differ, and an additional statement 26 directing the audience to a readily available written document with more detailed risk factors. Id. 27 The detailed factors in that written document, in turn, must constitute meaningful cautionary 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 20 1 United States District Court Northern District of California 2 language. 15 U.S.C. § 78u-5(c)(2)(B)(iii). Statements 1, 3, 4, 12, 21, and 25-27 fall under this part of the PSRLA safe harbor. 3 Specifically, Statements 1, 3, 4, 21, and 27 were made on earnings calls that began with the 4 following: “Before we begin, let me remind everyone that today’s discussion contains forward- 5 looking statements based on the environment as we currently see it and as such does include risks 6 and uncertainties. Please refer to our press release for more information on the specific risk 7 factors that could cause actual results to differ materially.” Elliott Decl., Ex. 7 at 2 (Statements 1, 8 3, 4); see also Elliott Decl., Ex. 8 at 3 (Statement 21); Ex. 9 at 3 (Statement 27). Statements 12, 9 25, and 26 were made at investor conferences which opened with similar language: “Today’s 10 presentation may contain forward-looking statements. All statements . . . that are not historical 11 facts are subject to a number of risks and uncertainties, and actual results may differ materially. 12 Please refer to their more recent earnings release, Form 10-Q and Form 10-K for more information 13 on the specific risk factors that could cause actual results to differ.” Elliott Decl., Ex. 10 at 1 14 (Statement 12); see also Elliott Decl., Ex. 12 at 1 (Statements 25 and 26). 15 This cautionary language accompanying Defendants’ oral statements satisfies the 16 requirements of the PSLRA safe harbor. The Ninth Circuit and district courts in the circuit have 17 repeatedly approved of cautionary language similar to that preceding Defendants’ statements on 18 earnings calls and at investor conferences. See, e.g., Police Ret. Sys. of St. Louis v. Intuitive 19 Surgical, Inc., 759 F.3d 1051, 1059 (9th Cir. 2014) (“Before we begin, I would like to inform you 20 that comments mentioned on today's call may be deemed to contain forward-looking statements. 21 Actual results may differ materially from those expressed or implied, as a result of certain risks 22 and uncertainties. These risks and uncertainties are described in detail in the company's [SEC] 23 filings. Prospective investors are cautioned not to place undue reliance on such forward-looking 24 statements.” (alteration in original)); Kipling, 2020 WL 2793463, at *11 (“This meeting and these 25 presentations contain forward-looking statements, which are based on current expectations and 26 assumptions that are subject to risks and uncertainties, and actual results could materially differ. 27 Such information is subject to change and we undertake no obligation to update these forward- 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 21 1 looking statements. For a discussion of the risks and uncertainties, see our most recent filings with 2 the SEC, including our current annual and quarterly reports.”); Barry v. Colony NorthStar, Inc., 3 No. CV 18-2888-GW (MRWx), 2022 WL 17084923, at *13 (C.D. Cal. Feb. 10, 2022) (collecting 4 cases). The Court therefore finds that Intel’s cautionary language is sufficient. United States District Court Northern District of California 5 The Court also concludes that the documents to which Intel’s warnings cite—Intel’s Forms 6 10-K and earnings press releases—contain meaningful cautionary language, as required. The 7 warnings accompanying Statements 25 and 26 cite to Intel’s 2019 Form 10-K, see Elliott Decl., 8 Ex. 12 at 1, which the Court has already found to contain meaningful cautionary language. The 9 warnings accompanying Statement 12 cite to an earlier SEC filing, Intel’s 2018 Form 10-K. 10 Elliott Decl., Ex. 10 at 1. Although the cautionary language in the 2018 Form 10-K differs 11 somewhat from that of the 2019 Form 10-K, it still warns of both production delays and low 12 yields, and it highlights Intel’s 10nm delays as an example of a delay. Elliott Decl., Ex. 2 at 52. 13 As such, that language is still meaningful. 14 Unlike the two warnings made during investor conferences, the warnings that accompanied 15 Statements 1, 3, 4, 21, and 27 on earnings calls did not directly reference SEC filings. Rather, 16 they referred to Intel’s earnings press releases. Elliott Decl., Ex. 7 at 2; Ex. 8 at 3; Ex. 9 at 3. The 17 press releases contained abbreviated cautionary language advising of risks related to “the timing of 18 qualifying products for sale,” “the timing of Intel product introductions,” and “variations related to 19 . . . product manufacturing quality/yields.” Elliott Decl., Ex. 4 at 4; see also Elliott Decl., Ex. 5 at 20 4; Ex. 6 at 4. These risk factors inform investors of the possibility of product delays and yield 21 issues, though they do not specify that Intel had previously experienced delays. Nonetheless, the 22 Court finds that the press releases contain meaningful cautionary language because they direct 23 investors to Intel’s most recent Forms 10-K, which do reveal that Intel had previously dealt with 24 product delays. Elliott Decl., Ex. 4 at 5; Ex. 5 at 5; Ex. 6 at 5. 25 Disputing that the cautionary language is adequate, Lead Plaintiffs argue that oral 26 statements are not protected by references to cautionary language that is “scattered” between 27 multiple SEC filings, and that Intel’s 2018 Form 10-K failed to warn specifically about Intel’s 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 22 1 7nm process. Opp’n at 13-14. In support of their first argument, Lead Plaintiffs cite to In re HI/FN, Inc. Securities United States District Court Northern District of California 2 3 Litigation, which held that “misleading oral statements are not protected by cautionary language 4 spread out among various documents.” No. C-99-4531 SI, 2000 WL 33775286, at *5 (N.D. Cal. 5 Aug. 9, 2000) (cleaned up). In re HI/FN is inapposite because it applied the judicially created 6 bespeaks caution doctrine rather than the statutory PSLRA safe harbor. Id.; see also Barry, 2022 7 WL 17084923, at *12 (distinguishing between the bespeaks caution doctrine and PSLRA safe 8 harbor). The safe harbor expressly permits defendants to invoke its protections for oral statements 9 by cross-referencing cautionary language in written statements. Intel did that here, thereby 10 satisfying the requirements of the safe harbor.6 Lead Plaintiffs’ second argument is also to no 11 effect. The PSLRA safe harbor demands only that companies warn of risks that might cause 12 actual results to differ from forward-looking predictions; nothing in the statutory language obliges 13 a company to specifically name its products. See 15 U.S.C. § 78u-5(c)(1)(A); Gammel v. Hewlett- 14 Packard Co., 905 F. Supp. 2d 1052, 1067 (C.D. Cal. 2012) (finding cautionary language to be 15 meaningful even when it did not expressly refer to the product at issue). 16 c. Actual Knowledge Statements 7, 8, 17, 18,7 and 30 are not accompanied by any cautionary language, so they 17 18 are protected by the PSLRA safe harbor only if Defendants did not have actual knowledge that 19 those statements were false. 15 U.S.C. § 78u-5(c)(1)(B). Defendants argue that, to plead actual 20 knowledge, Lead Plaintiffs needed to show that Defendants knew it was impossible to achieve 21 22 23 24 25 26 27 28 6 Lead Plaintiffs also cite Tarapara v. K12 Inc., No. 16-cv-4069-PJH, 2017 WL 3727112 (N.D. Cal. Aug. 30, 2017), arguing that cautionary statements made at different times than the challenged statements do not trigger safe harbor protections. Opp’n at 14 (citing Tarapara, 2017 WL 3727112, at *13). In that case, though, there was no indication that the oral statements were accompanied by an explicit cross-reference to the written documents containing detailed risk factors, as required by the PSLRA. Since such cross-references are present here, Tarapara is inapposite. 7 Statements 13-20 are from the December 10, 2019 UBS Conference. Elliott Decl., Ex. 11. While the transcript of the event contains cautionary language, it appears that the language was added after the fact by the transcription service. Id. at 10. It does not seem that any cautionary language was given during the conference itself, so the Court cannot conclude that the statements were accompanied by cautionary language. Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 23 1 their goals for Intel’s 7nm timeline. Mot. at 15 (citing Wochos, 985 F.3d at 1194). The analysis in 2 Wochos is instructive for how this Court should assess scienter as to forward-looking goals, but 3 Wochos did not require knowledge of impossibility. In that case, the Ninth Circuit was not 4 addressing actual knowledge when it considered whether defendants knew it was impossible to 5 reach their goals; instead, it dealt with the question of whether knowledge of impossibility would 6 render cautionary language not meaningful. Wochos, 985 F.3d at 1193-94. And even then, the 7 Ninth Circuit reserved that question, finding that plaintiffs failed to plead impossibility. Id. 8 United States District Court Northern District of California 9 Nonetheless, the Court concludes that Lead Plaintiffs have not pleaded actual knowledge for the reasons given in its discussion of scienter below. Accordingly, Statements 7, 8, 17, 18, and 10 30—and all other forward-looking statements regarding Intel’s 7nm timeline—are protected by 11 the safe harbor. * 12 13 * * In conclusion, Statements 1, 3, 4, 7, 8, 12, 17, 18, 21, 22, 24-27, 29, and 30 are each 14 protected by the PSRLA safe harbor to the extent they are about Intel’s 7nm timeline or product 15 development cadence. 16 17 18 2. Statements Regarding Lessons Learned a. Forward-Looking Statements Defendants argue that statements about lessons learned are forward-looking under Wochos. 19 Mot. at 12. From their perspective, a statement about lessons learned is an assumption about how 20 the progression of events leading up to a future goal will play out. Reply, ECF No. 67, at 2. Lead 21 Plaintiffs counter that Wochos did not hold that “lessons learned” statements are categorically 22 forward-looking, and that statements about lessons learned cannot be forward-looking unless they 23 are made in response to questions eliciting forward-looking information. Opp’n at 9-10. 24 On this point, Defendants overstate Wochos. Unlike an “on track” statement, which is 25 forward-looking because it restates or reaffirms a future goal, a “lessons learned” statement does 26 not necessarily possess the “sort of features that are inherent in any forward-looking statement,” 27 e.g., it is not “an implicit assertion that the goal is achievable based on current circumstances.” 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 24 United States District Court Northern District of California 1 Wochos, 985 F.3d at 1192. The Court cannot conclude that all “lessons learned” statements are 2 inherently forward-looking like “on track” statements, and similarly, the Court cannot conclude 3 that all statements about lessons learned fall under the umbrella of safe harbor as assumptions 4 about future events. Wochos distinguished between assumptions about future events, which are 5 protected by safe harbor, and assumptions based on present or past facts, which are not protected. 6 For example, the Ninth Circuit recognized that a company “can readily announce an objective 7 without stating, for example, that the reason why it is achievable is because production of relevant 8 units actually rose 75% over the last quarter or because the company has actually hit certain 9 intermediate benchmarks.” Id. Such factual assertions are outside the safe harbor and can be 10 actionable if they are false. Id. A statement about lessons learned can easily land outside the safe 11 harbor since there is nothing inherently forward-looking about lessons learned from past 12 experiences, and a company can announce its objectives without justifying them with lessons 13 learned. In this context, Wochos stands only for the proposition that statements about lessons 14 learned can be forward-looking, but whether that is so depends on the context. 15 The Court therefore commences its analysis by examining the “lessons learned” statement 16 in Wochos. There, plaintiffs challenged a response by Tesla’s CEO to an analyst question 17 concerning Tesla’s production goals for its Model 3 electric car. Wochos, 985 F.3d at 1191. The 18 analyst asked about “the biggest challenges or bottlenecks in ramping production to 5,000 vehicles 19 per week,” and Tesla’s CEO responded by discussing what the company had learned from its 20 Model X car. Id. He explained that the Model X was too complicated to produce due to the 21 company’s attempt to include “every cool thing you can imagine all at once.” Id. In his words, 22 that made for a “terrible strategy,” and Tesla had learned from the experience “to start off simple” 23 and to design the Model 3 “to be easy to make.” Id. Even though the comment could be viewed 24 as a statement about the present circumstances of the Model 3’s design, Wochos nonetheless held 25 that it was forward-looking. Id. at 1192-93. 26 27 The Wochos court did not separately expound on the reasons why the statement about the Model 3’s design was forward-looking. Instead, it grouped that statement with others and held 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 25 1 that all of them, except for one not relevant to the current analysis, were forward-looking. Id. at 2 1190-93. In explaining its ruling as to that group, the Wochos court contrasted “subsidiary 3 premises about how various future events will play out” en route to meeting an objective, with 4 “concrete factual assertion[s] about a specific present or past circumstance [that] goes beyond . . . 5 the articulation of predicate assumptions, because it describes specific, concrete circumstances 6 that have already occurred.” Id. at 1192. It explained that the former are forward-looking 7 statements “of the assumptions underlying or relating” to an objective while the latter fell outside 8 the safe harbor. Id. (quoting 15 U.S.C. § 78u-5(i)(1)(D)). United States District Court Northern District of California 9 Two observations emerge, providing guidance to this Court on how to assess statements 10 about lessons learned. First, consistent with Lead Plaintiffs’ argument, the “lessons learned” 11 statement in Wochos was made in response to a question about future objectives. Id. at 1191. The 12 presence of a question about the future enables a court to distinguish between (A) a forward- 13 looking assumption about how future events will play out and (B) a statement of present fact 14 untethered to any future objective. Second, the statement in Wochos identified vague, generic 15 lessons that conveyed little about how Tesla designed its Model 3. As the Ninth Circuit 16 emphasized, an “articulation of predicate assumptions” crosses over into an actionable factual 17 assertion only when it “describes specific, concrete circumstances.” Id. at 1192. The nebulous 18 learnings “to start off simple” and to design the Model 3 “to be easy to make” do not describe 19 concrete circumstances and convey only Tesla’s assumption that unspecified design changes 20 would streamline future production. See id. at 1191. More specific lessons, on the other hand, 21 could provide concrete descriptions of what Tesla actually changed and therefore be actionable as 22 a statement about the past or present. 23 Applying that guidance to the statements in the instant case, the Court concludes that 24 some, but not all of the “lessons learned” statements here are forward-looking. Each of 25 Statements 2, 3, and 9-17 were made in response to questions about future objectives for Intel’s 26 7nm launch or product development cadence. Elliott Decl., Ex. 7 at 11 (Statements 2 and 3); Ex. 27 10 at 5-6 (Statements 9-12); Ex. 11 at 2-3 (Statements 13-17). Statements 2, 3, 9, and 11-17 are 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 26 1 also vague descriptions of Intel’s general approach to developing its products, not concrete 2 descriptions of past or present. For instance, Statement 14 identifies a general principle of Intel’s 3 approach to designing its 7nm process—to balance scaling and cost with schedule predictability, 4 power, and performance—but it provides no details about any concrete steps that Intel took to 5 achieve that balance. By comparison, Statement 10 offers specific details, declaring that Intel 6 would reduce the complexity of its 7nm designs by foregoing any attempt at 2.4 or 2.7 scaling. 7 Accordingly, Statements 2, 3, 9, and 11-17 are forward-looking while Statement 10 is not. 8 United States District Court Northern District of California 9 b. Meaningful Cautionary Language and Actual Knowledge Statements 2, 3, 9, and 11-17 are assumptions underlying Intel’s objectives for its 7nm 10 timeline, so cautionary language that provides meaningful warning about the 7nm timeline also 11 provides meaningful warning about the “lessons learned” statements. In its discussion of 12 statements about the 7nm timeline above, the Court already found that the cautionary language 13 accompanying Statements 2, 3, 9, 11, and 12 is meaningful, so those statements are protected by 14 the PSLRA safe harbor. 15 Statements 13-17 are not accompanied by cautionary language. See supra n.7. 16 Nonetheless, for the reasons given in the Court’s discussion of scienter below, Lead Plaintiffs 17 have not pleaded actual knowledge, so the statements are protected by the safe harbor. 18 19 3. Statements Regarding Intel’s Status as an IDM Like the statements about lessons learned, the group of statements about Intel’s status as an 20 IDM contain a mix of forward-looking and non-forward-looking statements. Statement 8 about 21 Intel “expect[ing] its IDM model to be intact for the foreseeable future” is plainly a forward- 22 looking statement about future plans. See 15 U.S.C. § 78u-5(i)(1)(B). Statements 19 and 20, 23 which both discuss Intel’s relationships with external foundries and the value of the IDM model, 24 are also forward-looking because they deal with Intel’s expectations “going forward.” Compl. 25 ¶ 157; 15 U.S.C. § 78u-5(i)(1)(B). However, Statements 4 and 5 describe Intel’s present 26 relationship with external foundries, Statement 6 is about Intel’s current capacity building efforts, 27 and Statement 23 is the unequivocal present assertion, “We are an IDM.” Compl. ¶¶ 136-37, 167. 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 27 1 These statements are therefore not forward-looking and fall outside the PSLRA safe harbor. Because Statements 8, 19, and 20 are forward-looking and Lead Plaintiffs have not pleaded United States District Court Northern District of California 2 3 actual knowledge, as the Court discusses below, the statements are protected by the PSLRA safe 4 harbor. 5 B. 6 Under Section 10(b) and Rule 10b-5, it is “unlawful . . . to make any untrue statement of a 7 material fact or to omit to state a material fact necessary in order to make the statements made, in 8 light of the circumstances under which they were made, not misleading.” In re Cutera, 610 F.3d 9 at 1108 (cleaned up) (quoting 17 C.F.R. § 240.10b-5(b)). Thus, a plaintiff can state a claim by 10 pleading either an affirmative misrepresentation or a materially misleading omission. Wochos, 11 985 F.3d at 1188. 12 Misrepresentation or Omission The PSLRA requires a plaintiff proceeding with a misrepresentation theory to plead the 13 falsity of an alleged misstatement with particularity. Zucco Partners, LLC v. Digimarc Corp., 552 14 F.3d 981, 990-91 (9th Cir. 2009). This is an “exacting requirement[],” necessitating “‘specific 15 facts indicating why’ the statements at issue were false.” Kipling, 2020 WL 2793463, at *14 16 (quoting Metzler, 540 F.3d at 1070). To plead an omissions theory, a plaintiff must plead facts 17 showing that a statement “affirmatively create[s] an impression of a state of affairs that differs in a 18 material way from the one that actually exists.” Brody v. Transitional Hosps. Corp., 280 F.3d 19 997, 1006 (9th Cir. 2002). Federal securities laws “do not create an affirmative duty to disclose 20 any and all material information,” though. Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 21 (2011). Statements are not actionable merely because they are incomplete, and “[o]ften, a 22 statement will not mislead even if it is incomplete or does not include all relevant facts.” Brody, 23 280 F.3d at 1006. 24 1. 25 Statements Regarding Intel’s 7nm Development Timeline Each of the challenged statements regarding Intel’s 7nm development timeline is protected 26 by the PSLRA safe harbor, so the Court does not assess the falsity of those statements. Lead 27 Plaintiffs argue, though, that forward-looking statements which omitted material past or present 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 28 1 facts are not protected by safe harbor. Opp’n at 10, 13. Several district courts in this circuit have 2 agreed. See, e.g., Mulderrig v. Amyris, Inc., 492 F. Supp. 3d 999, 1021 n.15 (N.D. Cal. 2020) 3 (collecting cases); Loftus v. Primero Mining Corp., 230 F. Supp. 3d 1209, 1225 (C.D. Cal. 2017) 4 (collecting cases). But others differ. See, e.g., Melot v. JAKKS Pac., Inc., No. LA CV13-05388 5 JAK (SSx), 2016 WL 6902093, at *24 (C.D. Cal. Nov. 18, 2016) (finding that the PSLRA safe 6 harbor protects forward-looking statements alleged to constitute a misleading omission); see also 7 In re Pivotal, 2020 WL 4193384, at *15 (remarking that district courts disagree on whether the 8 safe harbor can protect omissions of historical fact). The Court does not undertake to address that 9 disagreement now, because Lead Plaintiffs have not shown that Defendants made material 10 United States District Court Northern District of California 11 omissions. Lead Plaintiffs contend that Defendants’ statements about Intel’s 7nm development 12 timeline omitted two material facts: (1) that Intel’s internal roadmaps for its 7nm development 13 had changed significantly by December 2019, and (2) Intel missed its hard tapeout deadline for its 14 initial 7nm product as of March 2020. Opp’n at 13. The first alleged omission is not one of 15 present or past fact. Intel’s internal roadmaps are forward-looking because they project future 16 product development milestones. For this reason, failing to disclose those roadmaps does not 17 create “an impression of a state of affairs that differs in a material way from the one that actually 18 exists.” Brody, 280 F.3d at 1006 (emphasis added). At most, it creates an alleged misimpression 19 about how future events will play out. Moreover, Lead Plaintiffs’ argument about Intel’s 20 roadmaps is not so much an omissions theory as it is a theory about the falsity of statements 21 regarding Intel’s 7nm timeline. To say that Intel’s internal roadmaps had changed is no different 22 than saying public statements about Intel’s 7nm development timeline were false, and a plaintiff 23 cannot circumvent the PSLRA safe harbor by simply arguing that a defendant omitted to say that 24 its statements were false. 25 The omissions theory regarding Intel’s hard tapeout deadline is equally unavailing. 26 “[C]ompanies do not have an obligation to offer an instantaneous update of every internal 27 development, especially when it involves the oft-tortuous path of product development.” Weston 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 29 1 Family P’ship LLLP v. Twitter, Inc., 29 F.4th 611, 620 (9th Cir. 2022). Yet that is precisely what 2 Lead Plaintiffs demand here by arguing that Defendants were obligated to disclose the allegedly 3 missed tapeout deadline. 4 5 6 United States District Court Northern District of California 7 As such, Lead Plaintiffs have failed to plead actionable omissions related to statements about Intel’s 7nm development timeline. 2. Statements Regarding Lessons Learned All statements regarding lessons learned are forward-looking except for Statement 10, so 8 the Court considers the falsity of only Statement 10. In Statement 10, Swan asserted that Intel was 9 “not going to try to do 2.4 scaling or 2.7 scaling.” Compl. ¶ 153. The complaint contains no 10 allegations about Intel’s scaling, so Lead Plaintiffs have not pleaded that Statement 10 is 11 actionably false. 12 As to the forward-looking statements regarding lessons learned, Lead Plaintiffs again 13 argue that omissions of present or past fact are not covered by the PSLRA safe harbor. Opp’n at 14 10. They contend that all statements regarding lessons learned, including Statement 10, are 15 misleading omissions for failing to disclose that Intel learned its manufacturing processes were 16 inadequate, that Intel would need to outsource production of its 7nm products, and that Intel was 17 designing its 7nm chips to be outsourced. Id. at 9. Citing to Schueneman v. Arena 18 Pharmaceuticals, Inc., Lead Plaintiffs maintain that a defendant who “tout[s] positive information 19 to the market” must then “disclos[e] adverse information that cuts against the positive” 20 representations. 840 F.3d 698, 706 (9th Cir. 2016) (cleaned up). 21 Lead Plaintiffs seem to imply that, once a company makes a positive statement, it has an 22 obligation to also disclose every fact that cuts against the positive news. Schueneman does not go 23 quite so far. If Lead Plaintiffs were correct, the federal securities laws would essentially function 24 as an obligation to make complete disclosures of adverse information, but the Ninth Circuit has 25 “expressly declined to require a rule of completeness for securities disclosures.” Intuitive 26 Surgical, 759 F.3d at 1061; see also Brody, 280 F.3d at 1006 (“We conclude that neither Rule 27 10b-5 nor Section 14(e) contains a freestanding completeness requirement.”). Indeed, a close read 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 30 1 of Schueneman reveals that its holding was more limited. It held that a company touting positive 2 information must “do so in a manner that wouldn’t mislead investors,” and said only that 3 disclosing adverse information was one way to avoid misleading investors. Schueneman, 840 4 F.3d at 706. Further, Schueneman emphasized that the statements at issue were misleading 5 because the defendants “affirmatively represented that ‘all the animal studies that [had] been 6 completed’ supported . . . approval” of a new drug, but the defendants knew of one study that 7 presented significant problems. Id. at 707-08 (alteration in original). Nothing in Schueneman 8 changes the rule that an omission is actionable only if it “affirmatively create[s] an impression of a 9 state of affairs that differs in a material way from the one that actually exists.” Brody, 280 F.3d at 10 United States District Court Northern District of California 11 1006. In contrast to the statements in Shueneman, none of the “lessons learned” statements here 12 create an affirmative misimpression. Most were vague assurances about how Intel would do 13 better. For example, Swan told investors that Intel was focusing on “lessons learned coming out 14 of the challenges we had with 10 and how we’re capturing those lessons learned as we think about 15 the next 2 generations,” Compl. ¶ 134 (Statement 2), or that “good news is we feel like we’ve got 16 [it] fairly well dialed in” based on learnings from the 10nm process. Id. ¶ 153 (Statement 9). 17 Even more specific statements, like Renduchintala’s statement that “one of the most important 18 lessons is to make it easy and fast for our design teams to be able to migrate through intra-node 19 transitions,” Id. ¶ 156 (Statement 17), do not remotely touch on the subject matter of the alleged 20 omissions. In the absence of any reference to manufacturing capabilities or outsourcing, there is 21 no reason to believe that an investor would form any understanding about those topics from the 22 “lessons learned” statements, let alone that Defendants created an affirmative misimpression. 23 Lead Plaintiffs’ reliance on City of Sterling Heights General Employees’ Retirement System v. 24 Hospira, Inc., No. 11 C 8332, 2013 WL 566805 (N.D. Ill. Feb. 13, 2013), does not change the 25 analysis. Despite one defendant stating that the company had “taken our learnings” and applied 26 them to manufacturing operations, the court never addressed that statement when analyzing the 27 alleged omissions. Id. at *6. 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 31 1 2 3 United States District Court Northern District of California 4 Accordingly, the Court finds that Lead Plaintiffs have failed to plead that the “lessons learned” statements are actionable misstatements or omissions. 3. Statements Regarding Intel’s Status as an IDM Lead Plaintiffs contend that each of the statements regarding Intel’s status as an IDM is a 5 misleading omission. They argue Defendants failed to disclose that Intel was planning to 6 outsource 7nm production to external foundries and had been designing its 7nm chips to be 7 outsourced. Opp’n at 10-11. Their arguments are not persuasive. 8 Lead Plaintiffs have not pleaded facts showing that Intel had definitive plans to outsource 9 production of its 7nm chips when Defendants made the challenged statements about Intel’s IDM 10 model. They rely on Intel’s Q2 2020 earnings call in July 2020, where Swan revealed that Intel 11 created “contingency plans” to outsource production of Intel’s 7nm chips if there were difficulties 12 with its process. Compl. ¶ 104. This, they maintain, demonstrates Intel’s intent to “withdraw[] 13 from [its] IDM model for its leading-edge products for the first time in history.” Opp’n at 11. 14 Contrary to Lead Plaintiffs’ assertion, the existence of a contingency plan does not evince an 15 intent to execute that plan. By its nature, a contingency plan is a last resort, and a company 16 making contingency plans would prefer not to implement them unless forced to do so. Intel’s 17 contingency plan to utilize external foundries for production of its 7nm products represents merely 18 the possibility that Intel might do so in the future. The omission of such a future possibility does 19 not create an impression of Intel’s present state of affairs that differs from the one that exists, and 20 Lead Plaintiffs cite no authority implying otherwise. See Brody, 280 F.3d at 1006. They point to 21 SEB Investment Management AB v. Align Technology, Inc., 485 F. Supp. 3d 1113, 1131-32 (N.D. 22 Cal. 2020), for the proposition that it is misleading to conceal a significant change in business 23 practices. But SEB did not address a situation where only the possibility of change was omitted; 24 by the time of the challenged statement in SEB, the company there had already implemented 25 changes in its business practices. Id. Sjunde AP-Fonden v. General Electric Company, 417 F. 26 Supp. 3d 379 (S.D.N.Y. 2019), is also inapposite. The alleged concealment in Sjunde involved 27 Item 303 of SEC Regulation S-K, id. at 407-09, a regulatory violation which Lead Plaintiffs do not 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 32 1 United States District Court Northern District of California 2 allege here. And Lead Plaintiffs have not identified the point at which the possibility of outsourcing 3 morphed into a decisive plan. They suggest that, because designing chips for manufacture in 4 external foundries would take eight to twelve months, Intel must have made the final call to 5 outsource several months before Swan announced the decision in July 2020. Opp’n at 23; Compl. 6 ¶ 106. But that inference rests on several assumptions unsupported by the allegations of the 7 complaint. First, it assumes that Intel would not have begun designing its 7nm chips for external 8 production until after the final decision to utilize external foundries. Yet, nothing in the complaint 9 explains why Intel would not have designed its 7nm chips for both internal and external 10 manufacture from the start. Doing so would be consistent with the allegations that Intel had 11 contingency plans in place because it would allow Intel to shift gears with minimal delay once a 12 final decision was made. Second, even assuming that redesign work commenced only after a final 13 decision to outsource, it does not follow that the decision had been made as of the time of Intel’s 14 challenged statements about its IDM model. The latest of Intel’s IDM statements came on 15 January 24, 2020 in Intel’s 2019 Form 10-K. Compl. ¶ 167 (Statement 23). If Intel made the 16 decision to outsource shortly after that, and redesign took the maximum twelve months, the 17 designs would still be ready by February 2021. That would leave approximately one year before 18 Swan indicated Intel’s first 7nm product would be released in late 2021 or early 2022. Id. ¶ 103. 19 Though Lead Plaintiffs suggest this is impossible, their complaint does not explain why that is so. 20 Finally, the allegation that Intel had already been designing its leading-edge chips for 21 external manufacture a “couple of years” before Swan disclosed Intel’s outsourcing plans does not 22 change the analysis. Id. ¶ 106. The Court explained above that such design work is fully 23 consistent with Intel’s alleged contingency plans. Just as it was not misleading for Defendants to 24 omit those contingency plans, it was not misleading for Defendants to omit their preparations for 25 those plans. 26 27 4. Statement Regarding Keller’s Departure Lead Plaintiffs allege it was false and misleading for Intel to state that Keller was leaving 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 33 United States District Court Northern District of California 1 for personal reasons because he actually left due to disagreements over Intel’s 7nm process. 2 Opp’n at 16. But they have failed to plead that the statement is a material misstatement or 3 omission. The complaint contains no facts showing that personal reasons were not a contributing 4 factor, and far from the statement creating an affirmative impression that all was well with Intel’s 5 7nm process, Lead Plaintiffs allege that analysts and investors reacted with immediate skepticism 6 and concern about Intel’s product development efforts. Compl. ¶ 96. Courts have found similar 7 statements evoking similar responses by analysts to not be actionable under Rule 10b-5, In re 8 Foxhollow Techs., Inc. Sec. Litig., 359 F. App’x 802, 805 (9th Cir. 2009), and the Court likewise 9 finds that Statement 28 about Keller’s departure is not actionable. 10 C. 11 A plaintiff bringing securities fraud claims must allege facts establishing a strong inference Scienter 12 of scienter. Tellabs, 551 U.S. at 324. Scienter can be established by showing either an “intent to 13 mislead investors” or deliberate recklessness. Glazer Cap. Mgmt., L.P. v. Forescout Techs., Inc., 14 --- F.4th ----, 2023 WL 2532061, at *9 (9th Cir. Mar. 16, 2023) (quoting In re NVIDIA Corp. Sec. 15 Litig., 768 F.3d 1046, 1053, 1059 (9th Cir. 2014)). “Deliberate recklessness is a higher standard 16 than mere recklessness and requires more than a motive to commit fraud.” Id. Instead, it is “an 17 extreme departure from the standards of ordinary care[,] which presents a danger of misleading 18 buyers or sellers that is either known to the defendant or is so obvious that the actor must have 19 been aware of it.” Webb v. Solarcity Corp., 884 F.3d 844, 851 (9th Cir. 2018) (alteration in 20 original) (quoting City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 21 856 F.3d 605, 619 (9th Cir. 2017)). Deliberate recklessness “only satisfies scienter under § 10(b) 22 to the extent that it reflects some degree of intentional or conscious misconduct.” NVIDIA, 768 23 F.3d at 1053 (quoting In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 977 (9th Cir. 1999)). 24 When considering scienter, a court considers “all reasonable inferences to be drawn from 25 the allegations, including inferences unfavorable to the plaintiffs.” Gompper v. VISX, Inc., 298 26 F.3d 893, 897 (9th Cir. 2002); see also Tellabs, 551 U.S. at 323-24. To satisfy the PSLRA, an 27 inference “must be more than merely ‘reasonable’ or ‘permissible’”—the inference must be 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 34 1 “cogent and at least as compelling as any opposing inference one could draw from the facts 2 alleged” after considering all allegations holistically. Tellabs, 551 U.S. at 322-24. Further, a 3 plaintiff who uses statements from confidential witnesses to demonstrate scienter is required to 4 describe those witnesses with “sufficient particularity to establish their reliability and personal 5 knowledge.” Zucco, 552 F.3d at 995. If a witness’s statement is corroborated by other factual 6 information, the plaintiff need not name its sources. Id. But if there is no corroborating 7 information, “the complaint must provide an adequate basis for determining that the witnesses in 8 question have personal knowledge of the events they report.” Id. 9 10 United States District Court Northern District of California 11 1. Statements Regarding Intel’s 7nm Development Timeline a. News Reports Leads Plaintiffs first argue that news reports from Demerjian and Wccftech show that 12 Defendants were aware of problems with Intel’s 7nm chip efforts. Opp’n at 17-20. They identify 13 two reports by Demerjian: (1) a December 12, 2019 report that Intel had pushed back its 14 roadmaps for certain 7nm products to the second half of 2023, Compl. ¶ 77, and (2) a July 24, 15 2020 report that Intel had missed its hard tapeout deadline on March 31, 2020. Id. ¶ 86. They also 16 identify a Wccftech article discussing leaked slides that allegedly indicated certain 7nm products 17 would not come to market until the second half of 2023. Id. ¶¶ 91-92. 18 As an initial matter, the parties vigorously contest whether and to what extent the Court is 19 obligated to assess the reliability of these articles. Defendants argue that the Zucco standard for 20 confidential witnesses should also apply to anonymous sources cited in public articles and reports. 21 Mot. at 15. Lead Plaintiffs respond that the Zucco test applies only to confidential witnesses and 22 that a court in this district had previously held the test to be inapplicable to reports based on 23 anonymous sources. Opp’n at 17-18 (citing In re Apple Inc. Sec. Litig., No. 19-cv-02033-YGR, 24 2020 WL 6482014, at *11 (N.D. Cal. Nov. 4, 2020)). 25 The Court disagrees with Lead Plaintiffs to the extent they suggest that there is no place 26 for a court to assess the reliability of news reports at all. The reason a plaintiff is required to plead 27 the reliability of confidential witnesses is to prevent her from “set[ting] forth a belief that certain 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 35 United States District Court Northern District of California 1 unspecified sources will reveal, after appropriate discovery, facts that will validate her claim.” 2 Apple, 2020 WL 6482014, at *11 (quoting Silicon Graphics, 183 F.3d at 985). That rationale 3 applies with equal force to both confidential witnesses and anonymous sources in news reports, 4 both of which are “unspecified sources.” Indeed, the court in Apple did not wholesale reject the 5 notion that courts should assess the reliability of news reports. It held only that a plaintiff need not 6 always provide “particularized descriptions of [anonymous sources] to establish their personal 7 knowledge of alleged facts.” Id. at *11 (citing Zucco, 552 F.3d at 995). That standard is what 8 Zucco requires if there is no additional factual information corroborating an unknown source’s 9 statements, but when there is corroborating information, a plaintiff need not offer such details. 10 Zucco, 552 F.3d at 995. Instead, in the latter situation, a court determines whether those sources 11 are likely to have relevant personal knowledge by reference to multiple factors, including “the 12 level of detail provided by the confidential sources, the corroborative nature of the other facts 13 alleged . . . , the coherence and plausibility of the allegations, the number of sources, [and] the 14 reliability of the sources.” Id. (citation omitted). The Apple court performed precisely this second 15 analysis, determining that it could credit allegations based on reports that were corroborated by 16 formal announcements from Apple’s suppliers. 2020 WL 6482014, at *11. At the same time, the Court does not agree with Defendants that a plaintiff need always 17 18 describe anonymous sources in news reports with particularity, a position which the Apple court 19 rejected. Id. Though a source’s reliability is not corroborated by the sole fact of being 20 “referenced in the newspaper,” In re Wet Seal, Inc. Sec. Litig., 518 F. Supp. 2d 1148, 1172 (C.D. 21 Cal. 2007), the fact that a source is cited by a media outlet carries weight. For example, In re 22 McKesson HBOC, Inc. Securities Litigation held that, “if [a] newspaper article includes numerous 23 factual particulars and is based on an independent investigative effort, it is a source that may be 24 credited.” 126 F. Supp. 2d at 1272. Thus, the Court finds that it must assess the reliability of 25 news reports by determining either that the reports contain particularized descriptions of 26 anonymous sources or that the media outlet responsible for the report is reliable under the Zucco 27 factors. 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 36 United States District Court Northern District of California 1 Applying that test to the articles cited by Lead Plaintiffs, the Court concludes that 2 Demerjian’s July 24, 2020 article, and the Wccftech article cited by Lead Plaintiffs, are not 3 reliable. Demerjian’s July 24, 2020 article about Intel’s tapeout deadline neither described its 4 sources nor was corroborated by any other allegations. See Elliott Decl., Ex. 15. The Court 5 accordingly does not consider that article. And the Wccftech article, although factually 6 corroborated by other sources, is enveloped in too many indicia of unreliability for the Court to 7 credit. The article relies on slides of indeterminate provenance, partially in Russian, that were first 8 posted on Twitter by an unknown and unnamed leaker. Compl. ¶¶ 90-92; Elliott Decl., Ex. 18. 9 What is more, the article freely acknowledges that it found the slides on Twitter, and nothing in 10 the article demonstrates any efforts to independently verify the authenticity of those slides. Elliott 11 Decl., Ex. 18. Under these circumstances, the Court cannot treat the article as a reliable source. 12 On the other hand, the Demerjian’s December 12, 2019 article is reliable. It stated that one 13 of Intel’s 7nm CPU products, known as Granite Rapids, had been delayed approximately one or 14 two years. Compl. ¶ 77. Although it does not describe its sources, see generally Elliott Decl., Ex. 15 14, its conclusions are corroborated by other allegations. In particular, as of at least December 16 2019, FE 1 was allegedly told that 7nm products were 1-2 years behind schedule, and Intel 17 announced a similar timeline when it disclosed delays to its 7nm CPU products. Compl. ¶¶ 78, 18 102. In addition, Lead Plaintiffs pleaded facts showing that Demerjian was respected by analysts 19 and journalists covering the semiconductor industry, and that he had been responsible for breaking 20 several major news stories in the industry. Id. ¶¶ 75-76. In response, Defendants flag that the 21 Ninth Circuit previously criticized Demerjian’s articles as “secondhand.” NVIDIA, 768 F.3d at 22 1058. In this instance though, given that Demerjian’s information has been corroborated by an 23 internal Intel source, the Court credits his December 12 article. 24 Still, Demerjian’s December 12 article does not support a finding of scienter. For one, the 25 article speaks to delays with Granite Rapids, which is Intel’s 7nm CPU product. By contrast, most 26 of the challenged statements about Intel’s 7nm timeline are about Intel’s first 7nm product, a 27 GPGPU product called Ponte Vecchio. Compl. ¶ 62; see, e.g., id. ¶ 132 (Statement 1: “We are on 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 37 United States District Court Northern District of California 1 track to launch our first 7-nanometer-based product, a data center-focused discrete GPU, in 2 2021.”), ¶ 153 (Statement 12: “[W]e feel pretty good about . . . launching our first 7-nanometer 3 product in the fourth quarter of 2021.”), ¶ 187 (Statement 30: “[Intel’s] 7-nanometer process 4 ‘remains on track’ with first products due by the end of 2021.”). Intel’s CPU products were 5 always intended to come out after Ponte Vecchio, id. ¶ 63, so Demerjian’s December 12 article 6 cannot support scienter as to statements regarding Intel’s first 7nm product. More generally, there 7 is no indication that the delays discussed in the article were ever communicated to any of the 8 Individual Defendants, and in fact, Demerjian explicitly wrote that it was possible “Intel’s top 9 management [were] so untethered from what is happening at the engineering level” that they were 10 unaware of the delays. Id. ¶ 77. The fact that Defendants mentioned “roadmaps” in some public 11 statements, e.g., id. ¶ 172 (Statement 26), without more, does not support an inference that 12 Defendants had access to the roadmaps that Demerjian described. “Roadmap” is a generic term 13 that could refer to Intel’s goals rather than a specific document, and the complaint offers no reason 14 to believe there was a single, unified roadmap that the entire company and all its employees 15 operated off of. Absent any suggestion that information about delays was passed upwards or 16 made available to Individual Defendants, the Court cannot conclude that they had actual 17 knowledge or were deliberately reckless in ignoring the delays. 18 b. Confidential Witnesses 19 Lead Plaintiffs contend that allegations from FE 1 and FE 2 also demonstrate scienter. 20 Opp’n at 18, 22. Defendants disagree, arguing that FE 1 is not reliable and FE 2 is irrelevant. 21 Mot. at 17-18. 22 The allegations from FE 2 may be quickly set aside. FE 2 notes only that there were 23 problems with 7nm yield without providing any detail on when those yield issues were observed 24 or how they would affect the 7nm schedule. Compl. ¶ 79. The bare allegation that there were 25 yield problems at some unspecified time does not support an inference that any Individual 26 Defendant knew of delays or was deliberately reckless. 27 FE 1’s allegations do contain timeframes. FE 1 observed that there were 7nm delays at 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 38 United States District Court Northern District of California 1 least as of December 2019, and FE 1 further stated that Keller informed Swan and Intel’s Board of 2 Directors about problems with 7nm in May or June of 2020. Id. ¶¶ 78, 93-94. Yet, neither 3 allegation supports scienter. The first allegation regarding delays in December 2019 is flawed for 4 some of the same reasons that Demerjian’s December 12 article was flawed: There is no 5 indication that the information from FE 1 made its way to any Individual Defendant. See id. ¶ 78. 6 The second allegation about Keller’s conversations with Swan and the Intel Board suffers from 7 hearsay issues. “[T]he fact that a confidential witness reports hearsay does not automatically 8 disqualify his statement from consideration in the scienter calculus.” Zucco, 552 F.3d at 997 n.4. 9 But hearsay “may indicate that a confidential witness[’s] report is not sufficiently reliable.” Id. 10 Applying this standard, the Zucco court declined to consider allegations from confidential 11 witnesses when they involved multiple layers of hearsay. Id. at 997. That is the same situation 12 here, where FE 1 was told by Intel’s former VP of Marketing, who was told by Keller, what Keller 13 allegedly told Swan and the Intel Board. Compl. ¶¶ 93-94. The Court finds that FE 1’s allegation 14 based on this chain of hearsay is not sufficiently reliable to credit.8 In sum, the Court determines that Lead Plaintiffs’ confidential witness allegations support 15 16 neither actual knowledge nor deliberate recklessness. 17 c. Core Operations As a third argument for scienter, Lead Plaintiffs invoke the core operations inference. 18 19 Opp’n at 20-22. They assert that Intel’s 7nm process was so important to Intel that it would be 20 absurd for Individual Defendants to not be aware of delays. Id. at 20-21. They also argue that 21 Individual Defendants had access to Intel’s 7nm roadmaps and specifically admitted to monitoring 22 7nm development. Id. at 21. Defendants answer that generic allegations of “monitoring” 7nm 23 development does not meet the high bar required for a core operations inference. Mot. at 21-22; 24 Reply at 13. 25 8 26 27 28 Defendants also argue that FE 1 is generally not reliable under Zucco because FE 1 was a marketing analyst who had no reason to know about Intel’s product development efforts. Mot. at 17-18. As Lead Plaintiffs explained in the complaint, though, marketing employees needed to be apprised of product timelines so they could communicate with customers. Compl. ¶ 78. That is sufficient explanation to satisfy Zucco. Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 39 1 2 allegations about core operations “may be used in any form along with other allegations that, when 3 read together, raise an inference of scienter.” S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 785 4 (9th Cir. 2008). Second, such allegations may satisfy the PSLRA if “they are particular and 5 suggest that defendants had actual access to the disputed information.” Id. at 786. Finally, “in 6 rare circumstances where the nature of the relevant fact is of such prominence that it would be 7 ‘absurd’ to suggest that management was without knowledge,” bare allegations of involvement in 8 core operations “without accompanying particularized allegations” can establish scienter.” Id. 9 United States District Court Northern District of California The Court may consider the core operations theory in three circumstances. First, Beginning with the third method of applying the core operations theory, the Court 10 determines that this situation is not the kind of “rare circumstance” where it would be absurd for 11 Individual Defendants not to know the exact progress of Intel’s 7nm development. Lead Plaintiffs 12 have alleged that Intel’s 7nm development was of great importance to the company and to 13 investors. Compl. ¶¶ 41-53. South Ferry’s third option, though, requires more. In most securities 14 fraud cases, the topics about which a company allegedly misled the market will be important to the 15 company and to investors, so importance, without more, is not the “rare circumstance” envisioned 16 by South Ferry. See Gammel, 905 F. Supp. 2d at 1078 (“[I]t does not automatically follow from 17 the ‘core’ nature of HP’s PC and printer businesses . . . that each Individual Defendant was 18 immediately aware of developments in HP’s [] strategy.”). None of Lead Plaintiffs’ authorities 19 compel the opposite result because none of them found that the core operations theory was 20 sufficient on its own to establish scienter; in each case, the inference of scienter was bolstered by 21 extensive supporting allegations. See Thomas v. Magnachip Semiconductor Corp., 167 F. Supp. 22 3d 1029, 1045 (N.D. Cal. 2016) (considering other allegations, including an admission of fault); 23 Hatamian v. Advanced Micro Devices, Inc., 87 F. Supp. 3d 1149, 1162-64 (N.D. Cal. 2015) 24 (relying on confidential witness allegations). 25 The Court also finds that the second method of applying the core operations theory does 26 not support scienter. Lead Plaintiffs focus on statements by Swan and Renduchintala that “we 27 monitor” 7nm development. Opp’n at 21 (citing Compl. ¶¶ 57, 191). But an acknowledgement 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 40 United States District Court Northern District of California 1 that “we” monitor certain developments does not rise to the level of particularized allegations of 2 access. In context, the use of “we” does not suggest that either Swan or Renduchintala personally 3 monitored 7nm development so much as it suggests Intel did so as a whole. The Court does not 4 find that these allegations support scienter. Where such allegations have proven sufficient to 5 establish scienter, they involved the tracking of specific metrics. See Shenwick v. Twitter, Inc., 6 282 F. Supp. 3d 1115, 1147 (N.D. Cal. 2017) (monitoring of “DAU” metric); Bielousov v. GoPro, 7 Inc., No. 16-cv-06654-CW, 2017 WL 3168522, at *6 (N.D. Cal. July 26, 2017) (tracking of 8 inventory in the channel). In those cases, there was no question about exactly what was being 9 tracked and what defendants would know. In comparison, allegations that Swan and 10 Renduchintala monitored 7nm progress provide no particularized details about what information 11 they would have been privy to or why access to that information supports scienter. See Fadia v. 12 FireEye, Inc., No. 14-cv-05204-EJD, 2016 WL 6679806, at *16 (N.D. Cal. Nov. 14, 2016) (“At a 13 minimum, Plaintiffs needed to have provided information about . . . which facts the Defendants 14 were exposed to, and why this exposure supports an inference of scienter.”). Finally, the Court will address the first methods of applying core operations in its holistic 15 16 analysis below. 17 d. Departures of Swan and Renduchintala9 Resignations and departures “may in some circumstances be indicative of scienter.” 18 19 Zucco, 552 F.3d at 1002. To support scienter, a plaintiff “must allege sufficient information to 20 differentiate between a suspicious change in personnel and a benign one.” Id. That is, a plaintiff 21 must allege the departure was “uncharacteristic” or “accompanied by suspicious circumstances.” 22 Id. Here, Swan and Renduchintala left shortly after the 7nm delays were announced, Compl. 23 ¶¶ 117, 128, supporting an inference that they were let go due to failures related to Intel’s 7nm 24 development. Such departures are hardly uncharacteristic since “[m]ost major stock losses are 25 often accompanied by management departures.” In re CornerStone Propane Partners, L.P. Sec. 26 Lead Plaintiffs also appear to argue that Keller’s departure supports scienter. Opp’n at 22. To the extent they so argue, the Court finds that his departure is not indicative of scienter because FE 1’s account of Keller’s departure is not reliable. 9 27 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 41 1 Litig., 355 F. Supp. 2d 1069, 1093 (N.D. Cal. 2005). Lead Plaintiffs have not otherwise identified 2 any suspicious circumstances attending to those departures, so on these allegations, the Court finds 3 the inference that Swan and Renduchintala were terminated for performance failures to be more 4 compelling than the inference of scienter urged by Lead Plaintiffs. 5 United States District Court Northern District of California 6 e. Holistic Review The Court closes with the holistic review required by Tellabs, 551 U.S. at 322-23. Taken 7 together, Lead Plaintiffs’ allegations paint a picture that there were problems with Intel’s 7nm 8 development, and perhaps, given the importance of 7nm to Intel, that the Individual Defendants 9 were generally aware that issues existed. The allegations go no further, though. Because the 10 complaint is lacking allegations describing with particularity the information that Individual 11 Defendants received, or the documents that they had access to, the Court cannot infer that any 12 Individual Defendant knew Intel could not meet its 7nm goals or were deliberately reckless in not 13 realizing. 14 Defendants also raise affirmative arguments against scienter, contending that a lack of 15 stock sales and the implausibility of Lead Plaintiffs’ theory weigh against an inference that 16 Defendants intended to mislead or were deliberately reckless. Mot. at 22-23. They argue that 17 there was no reason for Defendants to conceal product issues because those issues would 18 inevitably come to light, and that absent stock sales, there was no other motive for Defendants to 19 mislead. Id. Lead Plaintiffs respond that absence of motive is not fatal, and in any case, 20 Defendants were motivated to conceal problems with 7nm to forestall a customer exodus. Opp’n 21 at 24-25. 22 Defendants are correct that “a lack of stock sales can detract from a scienter finding.” 23 Webb, 884 F.3d at 856. But that is not inevitably so. When a theory of scienter is not based on 24 allegations that a defendant would benefit from inflated stock prices, a lack of stock sales does not 25 affect the scienter analysis. In re Splunk Inc. Sec. Litig., 592 F. Supp. 3d 919, 949 (N.D. Cal. 26 2022). Lead Plaintiffs do not allege a theory dependent on stock sales, instead focusing on a 27 motive to delay, Opp’n at 24-25, so the Court does not weigh the lack of stock sales against 28 Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 42 United States District Court Northern District of California 1 scienter. The Court does observe, however, that it is not clear why there would be a motivation to 2 delay. Delay is sometimes rational. For example, In re Alphabet, Inc. Securities Litigation found 3 that it was rational for Alphabet to avoid disclosure of cybersecurity information for the purpose 4 of delay because it wished to avoid attention at a time when there was already public scrutiny of 5 similar issues related to the Facebook-Cambridge Analytica scandal. 1 F.4th 687, 706-07 (9th Cir. 6 2021). Lead Plaintiffs do not offer a comparably reasonable justification for its theory of customer 7 exodus. There is no allegation or explanation for how customers’ belief that a product would be 8 released in the future caused them to do business with Intel at the time of the challenged 9 statements. This problem would not necessarily defeat scienter if Lead Plaintiffs had pleaded a 10 sufficiently strong inference of scienter through other allegations. See Nguyen v. Endologix, Inc., 11 962 F.3d 405, 415-16 (9th Cir. 2020) (noting that plaintiff’s theory of scienter was implausible on 12 its face but then proceeding to assess whether other allegations “surmount[ed] her plausibility 13 problem”). But Lead Plaintiffs have not done so, and therefore the implausibility of their theory 14 weighs against scienter. Id. (finding lack of scienter where plaintiff’s theory “does not make a 15 whole lot of sense”). In conclusion, even on a holistic review, Lead Plaintiffs have failed to plead a strong 16 17 inference of scienter. 18 2. Statements Regarding Lessons Learned and Intel’s Status as an IDM Lead Plaintiffs combine their scienter arguments for the “lessons learned” statements and 19 20 IDM statements because their theories of omission for both sets of statements rest on the 21 outsourcing of Intel’s 7nm chips. Opp’n at 22-23. They premise their scienter argument on the 22 idea that, due to the length of time required to redesign Intel chips for external manufacture, Intel 23 necessarily made the decision to outsource by the time the challenged statements were made. Id. 24 That decision, they argue, was so important that only the Individual Defendants, in their roles as 25 senior executives, could have authorized it. Id. As the Court already determined above, Lead 26 Plaintiffs’ assumptions about timing do not hold up, 10 so their theory of scienter likewise fails. 27 28 In so finding, the Court observed that no challenged statements about Intel’s IDM structure Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 43 10 3. 1 2 3 Statement Regarding Keller’s Departure Lead Plaintiffs argue that FE 1’s account of Keller’s departure, and the temporal proximity of the departure from Intel’s announcement that 7nm would be delayed, support a finding of scienter. Opp’n at 23-24. The Court already found that FE 1’s account is unreliable for purposes 4 of scienter, and temporal proximity cannot establish scienter by itself. Apple, 2020 WL 6482014, 5 at *10. Thus, Lead Plaintiffs have failed to plead a strong inference of scienter as to Keller’s 6 departure. 7 D. 8 Loss Causation The Court need only address loss causation if a plaintiff has otherwise pleaded actionable 9 misstatements or omissions. Fadia, 2016 WL 6679806, at *17. Because Lead Plaintiffs have 10 failed to plead any actionable misstatements or omissions, the Court declines to perform a loss 11 United States District Court Northern District of California causation analysis. 12 * * * 13 Lead Plaintiffs have failed to plead actionable misstatements or omissions and have failed 14 to plead scienter. Many of the challenged statements are also immunized under the PSLRA safe 15 harbor. Accordingly, the Court GRANTS Defendants’ motion to dismiss the Section 10(b) 16 claims. 17 18 III. SECTION 20(A) Lead Plaintiffs have failed to state a claim for violations of Section 10(b) and Rule 10b-5, 19 so their Section 20(a) claim must also be dismissed. City of Dearborn Heights, 856 F.3d at 623. 20 The Court therefore GRANTS Defendants’ motion to dismiss the Section 20(a) claims. 21 22 23 IV. LEAVE TO AMEND A court “should grant leave to amend . . . unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 24 2000) (citation omitted). Here, Defendants argue that dismissal should be with prejudice because 25 Wochos forecloses any possibility of successful amendment. Mot. at 25. But the Court cannot 26 27 28 were made after January 24, 2020. The same is true of statements about lessons learned. Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 44 1 determine that issues surrounding the non-forward-looking statements are unable to be cured by 2 amendment. Nor can the Court conclude that, as to the forward-looking statements, Lead 3 Plaintiffs will be unable to plead facts showing that Intel’s cautionary language was not 4 meaningful or that Defendants had actual knowledge of falsity. Because the Court cannot 5 determine that amendment would be futile, it GRANTS leave to amend. 6 CONCLUSION 7 The Court GRANTS Defendants’ motion to dismiss with leave to amend to cure the 8 deficiencies identified in this Order.11 Lead Plaintiffs shall file their amended consolidated 9 complaint by May 3, 2023. IT IS SO ORDERED. 10 United States District Court Northern District of California 11 Dated: March 31, 2023 12 13 EDWARD J. DAVILA United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 11 26 27 28 Lead Plaintiffs do not respond to Defendants’ puffery arguments. They therefore concede the point, though the Court has already determined that each of the challenged statements must be dismissed on other grounds. See Ardente, Inc. v. Shanley, No. 07-4479 MHP, 2010 WL 546485, at *6 (N.D. Cal. Feb. 10, 2010) (“Plaintiff fails to respond to this argument and therefore concedes it through silence.”). Case No.: 5:20-cv-05194-EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 45

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