After a disastrous second-quarter earnings report in August that resulted in the worst trading day for the company’s stock in 40 years, Intel (INTC) CEO Pat Gelsinger finally has some good news for Wall Street.
On Monday, Gelsinger announced that Intel has signed an agreement agreement with Amazon Web Services which will see the chipmaker produce custom chips for the cloud computing giant.
The CEO also said that Intel will transform its Foundry business in a subsidiary company with independent directors. A foundry is a semiconductor manufacturing facility. The move is intended to create a clear separation between Intel’s design and manufacturing businesses, giving Intel’s foundry customers peace of mind that its design teams will not have access to their chips.
But that’s not all. Intel also confirmed that it was… received $3 billion in funding of the CHIPS Act. In a statement, the company said the agreement “will help secure the domestic chip supply chain and collaborate with the (Department of Defense) to help improve the resilience of American technology systems by advancing secure, cutting-edge solutions.”
It’s not all good news for Intel, though. The company is in the midst of a massive restructuring plan, including laying off 15% of its workforce. The company also announced Monday that it is putting some of its plans to build new facilities in Europe on hold. And while it will complete its advanced packaging center in Malaysia, Intel says it won’t start up the factory until demand improves.
Then there’s Wall Street. While shares of rivals like Nvidia continue to rise, Intel’s are down a staggering 57% so far this year.
“I wouldn’t say they’re out of the woods yet,” Daniel Newman, CEO of Futurum Group, told Yahoo Finance. “But I would say the right steps are additional funding sources, announcements of new partners, and a clearer structure for external partners to invest.”
Intel’s foundry business gets a boost
Intel is a rarity among semiconductor giants in that it designs and assembles its own chips. Nvidia (NVDA), AMD (AMD) and Qualcomm (QCOM) work with outside manufacturers, notably TSMC, the world’s largest maker of advanced chips.
Intel is looking to take market share from TSMC by making chips for itself and third-party customers. Prior to the Amazon (AMZN) news, Microsoft (MSFT) was Intel’s largest manufacturing customer. However, the addition of another big name helps further establish Intel’s credibility as a chipmaker that can assemble semiconductors based on customer needs.
“Intel says it will have operating guidelines and independent board members that will be fully transparent,” Patrick Moorhead, CEO and chief analyst at Moor Insights, told Yahoo Finance. “And I think if they get the deal right, the operating rules right… I think they’re onto something here. I really do.”
The changes at Intel’s foundry will also give the company an opportunity to find outside capital for the business.
“The foundry business will now potentially be better able to access external sources of funding, providing the struggling line of business with capital raising capabilities and, ideally, allowing (Intel) to continue to focus on manufacturing capabilities without offsetting core business performance, striking a balance between (long-term) growth prospects and (short-term) profitability concerns,” Stifel analyst Ruben Roy wrote in a note to investors following Intel’s announcements.
But Intel’s foundry business has reportedly faced setbacks. According to ReutersBroadcom, which is evaluating Intel’s manufacturing processes, has been disappointed with tests of Intel-made chips. But Amazon’s addition appears to show that Intel’s manufacturing is working for certain customers.
Meanwhile, Intel’s work with the Defense Department illustrates that the government views it as a crucial supplier of some of its most critical components. Gelsinger has said that semiconductor assembly plants will play as big a role in geopolitics over the next 50 years as oil refineries did in the previous 50 years. And Intel is poised to play a big role in that for the United States.
New chips will test Intel’s market strength
However, Intel’s foundry business alone will not determine its future prospects. Its artificial intelligence and data centre segment will also have to step up after the company made previous mistakes in the high-power chip space.
According to Moorhead, Intel’s Gaudi AI processor hasn’t been a hit with hyperscalers like Amazon, Google and Microsoft because it came out after those companies began using or working on their own AI accelerators, giving them little reason to buy Intel’s offerings.
Intel has a new GPU coming in 2025 that could prove competitive with data center chips from Nvidia and AMD, but it will need to regain customer trust if it wants to gain market share.
Then there’s Intel’s Client Computing Group, responsible for the processors that power desktops and laptops around the world. The segment still generates the bulk of the company’s revenue, but faces stiff competition from rival AMD and Qualcomm’s emerging PC chip business.
To combat that, the company introduced its Core Ultra 200V chip line earlier this month. Intel says it delivers the kind of performance and battery life customers have been asking for, and puts the chips on par with Apple’s custom processors, which have won fans thanks to their own powerful, power-efficient design.
Now, Intel just needs to make sure the Core Ultra 200V series lives up to expectations when it starts hitting store shelves in the form of new laptops this fall. If it can do that and continues to attract customers to its foundry segment, Intel could be back on the up soon.
“It’s a good start,” Newman said. “I think anyone who says they’re over the crisis … is probably misinformed. But I would say that if you’re looking for some sort of road map or signpost, the direction that Ruben Roy is going from the bottom up is palpable.”
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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