Intel stock jumps on plan to turn foundry business into subsidiary and allow for outside funding

Intel shares jumped almost 10% in extended trading on Monday after the company said it plans to turn its foundry business into an independent unit with its own board and the potential to raise outside capital.

As part of CEO Pat Gelsinger's effort to turn around the struggling chipmaker, Intel said in a memo to employees that it will also sell off part of its stake in Altera.

Gelsinger said the restructuring would allow Foundry to "evaluate independent sources of funding," and comes days after Intel's board met to assess the direction and future of the company. The foundry business, which Intel plans to use to manufacture chips for other customers, has been a big drag on its bottom line, with the company spending roughly $25 billion on it for the last two years.

Beyond just considering outside funding, Intel is weighing whether to spin off the foundry business, possibly into a separate publicly traded company, according to a person with knowledge of the matter who declined to be named to discuss confidential information.

With a standalone "operating board" and a cleaner corporate structure, the mechanics of a separation become far easier than trying to turn a fully-integrated unit into a separate company.

Intel has lost almost 60% of its value this year, as the company has lost market share in its core PC and data center market and watched Nvidia run away with the market for chips that power artificial intelligence workloads. Last month, Intel reported disappointing quarterly results, sparking the sharpest selloff in 50 years, and said it would lay off over 15% of its workforce as part of a $10 billion cost-reduction plan.

Intel will also pause its fab efforts in Poland and Germany "by approximately two years based on anticipated market demand," Gelsinger said. The chipmaker will also pull back on its plans for its Malaysian factory. U.S. manufacturing projects will remain unaffected, the company said.

The company is also roughly halfway towards the layoffs announced in August, Gelsinger said.

Intel also announced on Monday that it had entered into a deal with Amazon Web Services to produce custom chips for AI.

The move is a vote of confidence in Intel's quest to manufacture custom chips for companies in its foundry business, in addition to designing its own products.

It extends a long-running partnership between the two companies. Amazon is a large end customer of Intel chips to power its AWS servers, and will buy a custom Xeon processor from Intel as well, Intel said.

It also will allow Intel a new foothold in the growing industry for AI server chips. While Intel has several products that can be used for AI, including one called Gaudi 3, Nvidia has largely taken control of the market.

Amazon has developed its own AI chips, including one called Trainium, for over five years. Companies such as Amazon, Microsoft, and Google have invested heavily in custom chips to run AI in hopes that theirs would be less expensive or offer other advantages over than Nvidia's general-purpose GPUs.

The company said that the chips would be made on the company's 18A process, which is expected to be used in production in 2025. Analysts expect the manufacturing technology to be similar to TSMC's forthcoming 2nm process. (The first chips using TSMC's 3nm process are shipping now in Apple's iPhone.)

Intel said that it would perform its most advanced manufacturing, including the AI chip for AWS, at its plant in Ohio that's currently under construction.

"All eyes will remain on us. We need to fight for every inch and execute better than ever before. Because that's the only way to quiet our critics and deliver the results we know we're capable of achieving," Gelsinger said.

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