Intel to Spin Out Foundry Business, Partners with AWS for AI Chip Development

Intel has announced a significant customer win and strategic changes to its foundry business as the struggling chipmaker aims for a turnaround. In a blog post, Intel CEO Patrick Gelsinger outlined plans to transition the chip foundry division, known as Intel Foundry, into an independent subsidiary. While the leadership of Intel Foundry will remain unchanged and continue to operate under Intel's umbrella, the subsidiary will now establish an operating board that includes independent directors.

Additionally, Gelsinger revealed that the company will pause its chip fabrication projects in Poland and Germany for two years due to anticipated market demand. Furthermore, Intel is considering scaling back its chip packaging and testing operations in Malaysia. Previously, Intel committed over $36 billion to construct semiconductor factories in Magdeburg, Germany, and pledged $4.6 billion for a chip plant near Wrocław in Poland, along with a $7 billion investment in its Malaysian facilities.

On a positive note for the foundry business, Gelsinger announced a partnership with AWS to co-develop an AI chip utilizing Intel's advanced 18A chip fabrication process. The company will also produce a custom Xeon 6 processor for AWS, further strengthening their existing collaboration. "We have tripled our deal pipeline since the beginning of the year,” Gelsinger noted about Intel Foundry’s business. He described the AWS agreement as a “multi-year, multi-billion-dollar framework” that could introduce further chip designs, showcasing the momentum Intel is achieving in building a world-class foundry operation.

Intel’s efforts in cost-cutting and strategic agreements, paired with a newly awarded $3.5 billion contract to manufacture chips for the Pentagon, contributed to a notable 6% increase in the company's stock at market close — a welcome boost amid an otherwise challenging fiscal year.

In the first quarter, Intel reported a net loss of $437 million, which deepened to $1.6 billion in the second quarter. Intel Foundry recorded $5.3 billion in operating losses during the first half of the year, despite showing a slight year-over-year increase in revenue.

Intel faces challenges, including reportedly losing a crucial customer, Sony, due to an unsuccessful negotiation for chip manufacturing for the next PlayStation console. This partnership could have added $30 billion to Intel's foundry business, according to Reuters.

This summer, Intel unveiled a $10 billion cost-reduction strategy, which includes laying off 15,000 employees through voluntary separation and early retirement options. The company claims it is more than halfway through the process and anticipates completion by the end of the year. Additionally, Intel is reportedly exploring the sale of its autonomous driving division, Mobileye, and its enterprise networking unit.