Shares of Intel rose just before the market opened on Tuesday after the chipmaker announced that its chipmaking unit would start producing some custom artificial intelligence chips for Amazon Web Services in an effort to revive its business.
CEO Pat Gelsinger said in a note to employees Monday night that Intel will make an AI fabric chip for Amazon’s cloud services division at its foundry business, a struggling division that he said will become a subsidiary of Intel.
“A subsidiary structure will provide significant benefits,” Gelsinger said. “It provides our external foundry customers and suppliers with greater separation and independence from the rest of Intel. Importantly, it also gives us flexibility going forward to evaluate independent sources of financing and optimize the capital structure of each business to maximize growth and shareholder value creation.”
JP Morgan’s Harlan Sur believes spinning off the foundry business into a subsidiary is a logical next step.
“We believe this move is a logical next step to bring about greater transparency and decision-making/efficiency and therefore should not come as a surprise,” the analyst wrote in a note to clients.
Sur expects that this shift could lead to the company spinning off in the coming years.
A board of directors consisting of independent directors will be established for the planned subsidiary.
Gelsinger also provided an update on Intel’s cost-cutting efforts. The executive said the chipmaker, through voluntary early retirement and separation offers, is more than halfway toward its target of cutting about 15,000 employees by the end of the year. He added that “tough decisions” still need to be made, with affected employees set to be notified in mid-October.
Intel plans to reduce or divest about two-thirds of its global real estate by the end of the year.
Shares of Intel Corp. rose nearly 7% in premarket trading.
