(Bloomberg) — Shares of Intel Corp. rose for a second day in a row after the troubled chipmaker made a series of announcements, fueling optimism that a turnaround plan is starting to bear fruit.
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In its most notable move, the company struck a multibillion-dollar deal with Amazon.com Inc.’s Amazon Web Services cloud division. to invest in a custom AI semiconductor. Intel could also receive as much as $3 billion in U.S. government funding to make chips for the military. And it’s turning its ailing manufacturing business, or foundry, into a wholly owned subsidiary.
But the chipmaker is also retreating in some areas. Intel said it would suspend plans for new factories in Germany and Poland — at least for now.
The news follows a meeting of Intel’s board of directors last week, where executives presented ways to save money while keeping CEO Pat Gelsinger’s turnaround plan on track over the longer term. The CEO’s efforts depend on transforming Intel into a foundry, but the Santa Clara, California-based company has been slow to find customers. A high-profile customer like Amazon represents a significant win.
Intel shares rose as much as 8% to $22.58 on Tuesday, following a 6.4% gain the day before. By the end of last week, they were down more than 60%.
Gelsinger, who embarked on a bold comeback for Intel in 2021, has had to scale back some of his ambitions in the name of efficiency. With revenue shrinking and losses piling up, the company last month announced plans to cut 15,000 employees, find $10 billion in cost savings and suspend Intel’s dividend. Now he is moving further to rein in expansion plans, especially abroad.
Construction projects in Poland and Germany will be suspended for approximately two years depending on market demand. Another in Malaysia will be completed but not put into service until conditions support it, Intel said.
The postponement of the German plant marks a setback for the European Union’s semiconductor ambitions and is likely to reignite controversy in Berlin over where to allocate 10 billion euros in earmarked subsidies.
While Intel is freezing work on new factories in Germany and Poland, the company says it remains committed to its U.S. expansion in Arizona, New Mexico, Oregon and Ohio.
The move to separate Intel’s foundry operations from the rest of the company is partly intended to convince potential customers – some of whom compete with Intel – that they are dealing with an independent supplier. Bloomberg had previously reported that the company was considering this option.
“We still have to learn things to become a foundry,” Gelsinger said in the interview. “I need a lot of customers.”
Intel also wants to accelerate efforts to implement $10 billion in cost cuts and better focus its products on AI computing, an area where rival Nvidia Corp. has excelled. And it hopes to cut its global real estate by about two-thirds by the end of the year.
In addition, the company reiterated plans to sell part of its stake in semiconductor maker Altera Corp. to sell to private equity investors. The company, which Intel bought in 2015, was separated from its operations last year with the aim of taking it public.
Amazon Web Services is the largest cloud computing provider and could help build confidence that Intel can compete with the likes of foundry leader Taiwan Semiconductor Manufacturing Co. AWS has used Intel processors over the years, but has increasingly moved to in-house processors. designs – the very products that Intel can now help manufacture.
The two companies will invest in a custom semiconductor for artificial intelligence – known as a fabric chip – in a “multi-year, multi-billion dollar framework,” according to a statement Monday. The work will be based on Intel’s 18A process, an advanced chip-making technology.
“Today’s announcement is big,” Gelsinger said of the deal on Monday. “This is a very demanding customer with very advanced design capabilities.”
Microsoft Corp., another major cloud computing provider, announced plans in February to also use Intel for some of its internal chips.
In another win, Intel said earlier Monday it is eligible for as much as $3 billion in U.S. government funding to produce chips for the military. The effort, called the Secure Enclave, aims to create a steady supply of advanced chips for defense and intelligence purposes. That news helped spark Monday’s rally.
The Secure Enclave award is separate from a potential $8.5 billion Chips and Science Act grant that Intel will receive to support factories in four US states. The projects include a factory in New Albany, Ohio, which Intel says could become the world’s largest chip manufacturing company.
Intel still has a long way to go to regain the full trust of Wall Street. After years of losing ground to rivals and seeing its technological edge disappear, the Silicon Valley pioneer is valued at less than $100 billion. On that basis, it is no longer among the top 10 chip companies. Nvidia now has a market capitalization of about $2.9 trillion.
Intel shocked investors last month with a bleak financial report, leading to the biggest one-day stock drop in decades. Analysts described the announcement as Intel’s worst earnings report ever.
Gelsinger acknowledged in a letter to employees that the chipmaker’s performance has been negatively reviewed — and fueled speculation about what might happen to the company. The only way to “silence our critics” will be to deliver results and perform better, he said. This week’s announcements are a step in that direction, he said.
“Is it good enough? No. Is it substantial? Yes,” he said in the interview. “I have repeated my promise. We are going to complete a groundbreaking assignment.”
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