On Tuesday morning, Intel Corporation's ($INTC) shares experienced a noteworthy uptick following the announcement of significant changes in its operational strategy. The well-known chipmaker revealed plans to establish its manufacturing division as an independent subsidiary. This move is aimed at enhancing efficiency and stimulating growth within the company.
Additionally, Intel is set to deepen its collaboration with Amazon.com’s ($AMZN) cloud computing division to develop tailored artificial intelligence (AI) chips that could potentially transform their market offerings. In a communication to Intel employees on Monday, Chief Executive Officer Pat Gelsinger detailed the next steps in the company’s ongoing transformation framework.
He noted that creating Intel Foundry as a self-governing unit within the larger corporate structure would facilitate the assessment of independent funding sources. This strategic shift is intended to optimize the capital structure of the foundry operations, which is essential for maximizing growth prospects for Intel.
Following the announcement, there was a reported 7% increase in Intel's share price during pre-market trading. The new foundry entity will be governed by an independent board, bolstering Intel's commitment to transparency, optimization, and accountability across its operations. Gelsinger emphasized this shift in governance, stating, "This supports our continued focus on driving greater transparency, optimization, and accountability across the business." Earlier in this fiscal year, Intel had signaled a transition to a novel operational model, a move that aims to bolster profitability and harness unrealized value for the foundry business.
One of the core objectives for the Intel Foundry will be improving capital efficiency, as articulated by Gelsinger. Concurrently, Intel remains dedicated to its domestic manufacturing ambitions, with ongoing projects in states such as Arizona, Oregon, New Mexico, and Ohio. However, the company has decided to pause its fabrication initiatives in Germany and Poland for a period of two years.
There is a plan in motion to finalize the advanced packaging factory in Malaysia, but its launch will be tailored to align with market demand. In further efforts to streamline operations, Intel intends to rearrange its product portfolio. The strategy includes consolidating its edge and automotive businesses within its client computing group.
Furthermore, Intel aims to advance its integrated photonics solutions into the data center and AI sector, as well as integrating its software and incubation divisions within its essential business units. In an additional announcement, Intel disclosed a multi-year, multi-billion dollar collaborative investment with Amazon Web Services to craft specialized designs for AI chips.
This partnership will see Intel producing an AI fabric chip for AWS utilizing its advanced Intel 18A process node technology. Furthermore, they will create a custom Xeon 6 chip based on Intel 3 technology, thereby extending their existing partnership, which has seen Intel supply scalable Xeon processors to Amazon Web Services.
The previous month, during the release of its second-quarter earnings report, Intel unveiled a significant $10 billion cost-reduction strategy amid a backdrop of annual declines in financial performance that fell short of market expectations. This initiative includes the layoff of over 15% of Intel's workforce.
"We are more than halfway to our workforce reduction target of approximately 15,000 by the end of the year," Gelsinger remarked on Monday. He acknowledged the challenges ahead, assuring that impacted employees would be notified in mid-October. Moreover, Gelsinger communicated that Intel has secured direct funding of up to $3 billion from the U.S.
government for its Secure Enclave initiative, which falls under the guidelines of the CHIPS and Science Act. This funding will facilitate the manufacturing of semiconductors intended for the Department of Defense. The importance of this funding underscores Intel’s strategic position in the semiconductor manufacturing landscape and its commitment to supporting national defense initiatives..