Intel Announces Spin-Out of Foundry Business with AWS AI Chip Deal

Intel is embarking on a pivotal move, transitioning its chip foundry division into an independent subsidiary. This strategic decision aims to position Intel Foundry for success amid the company’s efforts toward a significant turnaround.

Intel CEO Patrick Gelsinger revealed this shift in a blog post, indicating that although there will be no leadership changes, Intel Foundry will now operate with its own board, comprising independent directors. This structural change is intended to enhance operational efficiency and strategic focus.

Simultaneously, Intel has announced that it will pause its chip fabrication projects in Poland and Germany for two years. This decision is driven by market demand forecasts. Additionally, the company is considering a pullback on its chip packaging and testing factory in Malaysia. These moves are part of a broader cost-cutting strategy to optimize resources.

Intel previously committed substantial investments to its global operations, including over $36 billion for semiconductor factories in Germany, $4.6 billion for a plant in Poland, and $7 billion for its Malaysian operations. However, adapting to current market conditions necessitated these strategic pauses and reevaluations.

In a triumphant announcement, Gelsinger disclosed a groundbreaking deal with AWS to co-develop an AI chip using Intel’s advanced 18A chip manufacturing process. Furthermore, Intel will produce a custom Xeon 6 processor for AWS, solidifying their ongoing partnership. This deal is described as a ‘multi-year, multi-billion-dollar framework’ that showcases Intel’s progress toward building a top-tier foundry business.

Since the start of the year, Intel Foundry has tripled its deal pipeline. Such achievements signify the company’s relentless drive to expand its market reach and capability. Additionally, Intel secured a $3.5 billion contract to manufacture chips for the Pentagon, a notable win in a challenging fiscal year.

The financial outlook for Intel has been tough, with the company reporting significant net losses: $437 million in Q1 and a staggering $1.6 billion in Q2. Intel Foundry itself reported $5.3 billion in operating losses for the first half of the year. Despite the challenging financial landscape, these new deals and strategic shifts provide a glimmer of optimism.

Intel’s aggressive cost-reduction plan, which includes a $10 billion savings target and workforce reductions involving 15,000 staff cuts, is more than halfway complete with an expected wrap-up by year-end. Additionally, Intel is exploring the sale of its autonomous driving arm, Mobileye, and its enterprise networking division to streamline operations and focus on core strengths.

The loss of a major customer like Sony, which did not reach an agreement for its next PlayStation console, highlighted the challenges Intel faces. The potential $30 billion revenue from this deal would have been a significant boost for Intel Foundry. Nevertheless, the AWS collaboration and other new deals are critical to Intel’s recovery strategy.

Intel’s strategic transitions, highlighted by innovative partnerships and a focus on cost-efficiency, demonstrate a determined effort to regain its market leadership. The company’s collaboration with AWS and operational shifts present a pathway to bounce back from financial challenges and set a course for a successful future.

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Emmanuel Kesse

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