Intel (INTC) CEO Pat Gelsinger finally has some good news for Wall Street after a disastrous second-quarter earnings report in August marked the worst trading day for the company’s stock in 40 years. .
On Monday, Gelsinger announced that Intel has signed a deal with Amazon Web Services that will see the chipmaker make custom chips for the cloud computing giant.
The CEO also said Intel will move its foundry business into a subsidiary with independent directors. A foundry is a semiconductor manufacturing facility. The move is intended to clearly separate Intel’s design and manufacturing operations and provide Intel’s foundry customers with peace of mind that their design teams do not have access to their own chips.
That’s not all. Intel also acknowledged that it received $3 billion in funding from the CHIPS Act. The company said in a release that the partnership will “ensure the security of the nation’s chip supply chain and strengthen the resiliency of America’s technology systems by working with the (Department of Defense) to advance secure, cutting-edge solutions.” It will help strengthen us.”
However, it’s not all good news for Inter. The company is in the midst of a major restructuring plan that includes laying off 15% of its workforce. The company also announced on Monday that it was putting some plans to build new facilities in Europe on hold. Intel also plans to complete an advanced packaging hub in Malaysia, but has said it will not open the factory until demand improves.
Next is Wall Street. While rivals like Nvidia’s stocks continue to rise, Intel’s stock price has fallen an astounding 57% since the beginning of the year.
“I wouldn’t say they’re out of the woods yet,” Futurum Group CEO Daniel Newman told Yahoo Finance. “But we think the additional funding sources, the announcement of additional partners, and a cleaner structure for external partners to invest are all the right moves.”
Intel’s foundry business accelerates
Intel is unusual among semiconductor giants in that it both designs and assembles its own chips. Nvidia (NVDA), AMD (AMD), and Qualcomm (QCOM) each work with third-party manufacturers, namely TSMC, the world’s largest advanced chipmaker.
Intel is trying to capture TSMC’s market share by making chips for both itself and third-party customers. Before the Amazon (AMZN) news, Microsoft (MSFT) was Intel’s most prominent manufacturing customer. But adding another strong name would help further establish Intel’s credibility as a chip builder that can assemble semiconductors based on customer needs.
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Intel CEO Pat Gelsinger speaks at an event called AI Everywhere on Thursday, December 14, 2023 in New York. (AP Photo/Seth Wenig, File) (ASSOCIATED PRESS)
“Intel says it will have fully transparent operating guidelines and independent board members,” Patrick Moorehead, CEO and chief analyst at Moore Insights, told Yahoo・Told Finance. “And I think if they can get the right agreement, the right operating rules, they can get something out of it. I really do.”
Intel’s foundry move will also give the company an opportunity to find outside capital for the business.
“The foundry industry may have better access to external sources of funding in the future, providing financing capacity for struggling business areas and ideally helping[Intel]offset the performance of its core business.” “It allows us to continue to focus on manufacturing capacity without having to do much, and balances (long-term) growth prospects with (short-term) profitability concerns,” Stifel analyst Ruben Roy said of Intel’s announcement. In response, he wrote in a note to investors:
However, Intel’s foundry business is reportedly facing setbacks. Broadcom, which evaluates Intel’s manufacturing processes, was disappointed in its test runs of Intel chips, Reuters reported. But Amazon’s entry seems to indicate that Intel’s manufacturing is working for certain customers.
Meanwhile, Intel’s work with the Department of Defense shows that the government considers the company a critical supplier for some of its most critical components. Gelsinger said semiconductor assembly plants will play as big a role in geopolitics over the next 50 years as refineries have over the past 50 years. And Intel is going to play a key role in that for the United States.
New chips test Intel’s market power
However, Intel’s foundry business alone does not determine its future prospects. The company’s AI and data center divisions will also need to be strengthened after the company made previous mistakes in the area of high-power chips.
Moorhead said Intel’s Gaudi AI processors have not caught on among hyperscalers such as Amazon, Google and Microsoft. The announcement comes after these companies have started using or developing their own AI accelerators, so these companies have little reason to buy Intel’s products.
An excavator stands early in the morning at a construction site where chipmaker Intel hopes to build a chip factory. (Klaus-Dietmar Gabbert/picture Alliance via Getty Images) (picture Alliance via Getty Images)
Intel is developing new GPUs that could prove competitive with data center chips from Nvidia and AMD in 2025, but it needs to win back customer trust to take market share.
Then there’s Intel’s Client Computing Group, which is responsible for the processors that power desktops and laptops around the world. The division still generates the largest portion of the company’s revenue, but it faces stiff competition from rivals AMD and Qualcomm’s nascent PC chip business.
To combat that, the company debuted its Core Ultra 200V chip line earlier this month. Intel says the chip packs the kind of performance and battery life customers have been looking for, similar to Apple’s custom processors that have won fans thanks to their uniquely powerful and power-efficient designs. It is said to be equipped with a chip.
Now Intel just needs to make sure the Core Ultra 200V series lives up to expectations when the new laptops start hitting shelves this fall. If Intel can do that and continue to win customers in the foundry sector, it could soon be back on an upward trajectory.
“This is a good start,” Newman said. “I think people who say we’ve turned a corner are probably uninformed. But if you’re looking for something like a roadmap or a signal, I think Ruben Roy’s direction from the bottom is clear. Masu.”
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Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter @Daniel Howley.
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