(Bloomberg) — Intel Corp. Chief Executive Pat Gelsinger has landed Amazon.com Inc.’s AWS as a customer for the company’s manufacturing arm, potentially bringing work to new factories under construction in the U.S. and boosting his efforts to get the embattled chipmaker back on track.
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Intel and AWS will jointly invest in a custom semiconductor for artificial intelligence computing — known as a fabric chip — in a “multi-year, multi-billion-dollar framework,” according to a statement Monday. The work will rely on Intel’s 18A process, an advanced chipmaking technology.
Shares rose more than 8% in late trading after the announcement. They had fallen 58% this year, closing Monday at $20.91.
“Today’s announcement is big,” Gelsinger said in an interview. “This is a very demanding customer with very advanced design capabilities.”
The news was part of a flurry of announcements following a crucial board meeting last week. Intel is also delaying new factories in Germany and Poland, but remains committed to its U.S. expansion in Arizona, New Mexico, Oregon and Ohio.
Gelsinger, who launched a bold comeback attempt for Intel in 2021, has had to scale back some of his ambitions in the name of efficiency. With sales falling and losses mounting, the company last month announced plans to cut 15,000 workers, find $10 billion in cost savings and suspend Intel’s dividend. Now he’s moving to further curtail expansion plans, particularly abroad.
Construction projects in Poland and Germany will be halted for about two years, depending on market demand. Another project in Malaysia will be completed but not put into operation until conditions allow, Intel said.
During last week’s three-day board meeting, executives laid out options to save money while keeping Gelsinger’s turnaround plan on track. The CEO’s effort centers on transforming Intel into a so-called foundry, a chipmaker that produces products for outside customers. The Santa Clara, California-based company has been slow to attract customers for the project — and a high-profile customer like Amazon represents a notable victory.
Intel also wants to accelerate efforts to execute on a $10 billion cost-cutting effort and better focus its products on AI computing, an area where rival Nvidia Corp. has excelled. It also wants to reduce its global real estate by about two-thirds by the end of the year.
And the company reiterated plans to sell part of its stake in Altera Corp. to private equity investors. The company, which Intel bought in 2015, was spun off from operations last year with the goal of going public.
Amazon Web Services is the largest provider of cloud computing, and it could help boost confidence that Intel can compete with companies like Taiwan Semiconductor Manufacturing Co., a leader in foundries. AWS has used Intel processors over the years but has shifted more toward in-house designs, the very products that Intel may now help produce.
Microsoft Corp., another major cloud computing provider, announced in February plans to use Intel for some of its own chips as well.
Another change: Intel’s foundry business, called IFS, is being further separated from the rest of the company and will become a wholly owned subsidiary. The move is partly intended to reassure potential customers — some of whom compete with Intel — that they’re dealing with an independent supplier. Bloomberg has previously reported on the potential foundry separation.
“We still have to learn things about becoming a foundry,” Gelsinger said in the interview. “I need a lot of customers.”
In another victory, Intel said earlier Monday that it is eligible for up to $3 billion in U.S. government funding to produce chips for the military. The effort, called Secure Enclave, is aimed at creating a steady supply of advanced chips for defense and intelligence purposes. That news helped send shares up 6.4% in regular trading on Monday.
The Secure Enclave award is separate from a potential $8.5 billion Chips and Science Act grant that Intel could receive to support factories in four U.S. states. The projects include a facility in New Albany, Ohio, that Intel has said could become the world’s largest chip manufacturing facility.
Intel has a long way to go to regain Wall Street’s full trust. After years of losing ground to rivals and seeing its technological edge, the Silicon Valley pioneer is valued at less than $90 billion. It’s no longer among the top 10 chip companies on that basis. Nvidia now has a market cap of about $2.9 trillion.
Intel shocked investors with a dismal financial report last month, triggering the stock’s biggest one-day 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 has fueled speculation about what might happen to the company. The only way to “silence our critics” is to deliver results and execute better, he said. Today’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 reaffirmed my commitment. We are going to complete a groundbreaking assignment.”
–With assistance from Mackenzie Hawkins.
(Updates with further announcements begin in the ninth paragraph.)
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