Intel Plans To Turn Foundry Business Into Subsidiary, Allow For Outside Funding

Intel shares surged 8% after announcing plans to make its foundry business an independent unit with its own board and potential for outside capital, part of CEO Pat Gelsinger's strategy to restructure the company amid financial challenges. The company is also exploring the possibility of spinning off the foundry business, pausing some European manufacturing projects, and expanding its AI chip production partnership with Amazon Web Services to regain market share in the growing AI server chip industry. CNBC reports: As part of CEO Pat Gelsinger's effort to turn around the struggling chipmaker, Intel said in a memo to employees that it will also sell off part of its stake in Altera. Gelsinger said the restructuring would allow the foundry business to 'evaluate independent sources of funding,â and comes days after Intel's board met to assess the direction and future of the company. The foundry business, which Intel plans to use to manufacture chips for other customers, has been a big drag on its bottom line, with the company spending roughly $25 billion on it in each of the last two years. Beyond just considering outside funding, Intel is weighing whether to spin off the foundry business, possibly into a separate publicly traded company, according to a person with knowledge of the matter who declined to be named in order to discuss confidential information. With a standalone 'operating board' and a cleaner corporate structure, the mechanics of a separation become far easier than trying to turn a fully integrated unit into a separate company. Intel will also pause its fabrication efforts in Poland and Germany 'by approximately two years based on anticipated market demand,' Gelsinger said, and pull back on its plans for its Malaysian factory. U.S. manufacturing projects will remain unaffected, the company said.

In addition to the foundry announcement, Intel said it entered into a deal with Amazon Web Services to produce custom chips for AI, extending a long-running partnership between the two companies. Amazon is a big customer of Intel chips to power its AWS servers, and will buy a custom Xeon processor from Intel as well, Intel said. The move will potentially give Intel a new foothold in the growing industry for AI server chips. While Intel has several products that can be used for AI, including Gaudi 3, Nvidia has largely taken control of the market. Amazon has been developing its own AI chips, including one called Trainium, for over five years. Microsoft and Google have also invested heavily in custom chips to run AI, aiming to offer less expensive processors than Nvidia's general-purpose graphics processing units. Intel said that it would carry out its most advanced manufacturing, including the AI chip for AWS, at its plant in Ohio that's currently under construction. 'All eyes will remain on us,' Gelsinger said. 'We need to fight for every inch and execute better than ever before. Because that's the only way to quiet our critics and deliver the results we know we're capable of achieving.'

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