(Bloomberg) — Intel Corp. Chief Executive Officer Pat Gelsinger has won Amazon.com Inc.’s AWS as a manufacturing customer, a move that could bring jobs to a new factory being built in the U.S. and bolster efforts to turn around the struggling chipmaker.
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Intel and AWS will jointly invest “a multi-year, multi-billion-dollar framework” in custom semiconductors (called fabric chips) for artificial intelligence computing, according to a statement on Monday. The effort will rely on Intel’s advanced chip manufacturing technology, the 18A process.
The company’s shares rose more than 8% in late trading after the announcement. They have fallen 58% this year to close at $20.91 on Monday.
“Today’s announcement is a big one,” Gelsinger said in an interview. “This is a very discerning customer with very sophisticated design capabilities.”
The news is part of a series of announcements that followed a key board meeting last week. Intel is also postponing construction of new factories in Germany and Poland, but remains focused on expanding its U.S. operations in Arizona, New Mexico, Oregon and Ohio.
After embarking on a bold comeback for Intel in 2021, Mr. Gelsinger has been forced to scale back some of his ambitions in the name of efficiency. With sales shrinking and losses mounting, the company last month announced plans to cut 15,000 jobs, implement $10 billion in cost-cutting measures and suspend Intel’s dividend. Mr. Gelsinger is now seeking to further rein in expansion plans, especially overseas.
Construction projects in Poland and Germany will be halted for around two years, depending on market demand, while another project in Malaysia will be completed but start up once conditions are right, Intel said.
During a three-day board meeting last week, executives laid out options for how to conserve cash while keeping Mr. Gelsinger’s turnaround plan on track. The CEO’s effort hinges on transforming Intel into what’s known as a foundry, a chipmaker that makes products for outside customers. The Santa Clara, California-based company has been slow to land customers for the project, so winning a big-name client like Amazon would be a notable win.
Intel is also considering accelerating a $10 billion cost-cutting effort and focusing its products more on AI computing, an area rival Nvidia excels in. It also plans to cut its global real estate by about two-thirds by the end of the year.
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The company also reiterated plans to sell a portion of its stake in Altera Corp., which Intel bought in 2015 and spun off the business last year in an effort to go public.
Amazon Web Services is the largest provider of cloud computing and could help Intel build confidence that it can compete with companies such as foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC). AWS has used Intel processors for years but has shifted toward in-house designs and now the very products that Intel helps manufacture.
Microsoft, another major cloud computing provider, also announced plans in February to use Intel for some of its chips.
Another change is that Intel’s foundry business, called IFS, will be further separated from the rest of the company and become a wholly owned subsidiary. The move is aimed in part at convincing potential Intel competitors that they are dealing with an independent supplier. Bloomberg previously reported on the possible foundry separation.
“We still have a lot to learn to be a foundry,” Gelsinger said in an interview. “We need a lot of customers.”
In another win, Intel announced Monday that it is eligible to receive up to $3 billion in U.S. government funding to build chips for the military. The effort, called Secure Enclave, aims to establish a steady supply of cutting-edge chips for defense and intelligence purposes. The news sent the company’s shares up 6.4% in regular trading on Monday.
The Secure Enclave grant is separate from $8.5 billion in Chip and Science Act grants Intel is set to receive to support factories in four U.S. states. The project includes a facility in New Albany, Ohio, which Intel says could become the world’s largest chip manufacturing facility.
Intel still has a long way to go before it regains Wall Street’s full confidence. After years of being pushed aside by rivals and losing its technological edge, the Silicon Valley pioneer is valued at less than $90 billion, meaning it no longer ranks among the top 10 chip companies by that measure. Nvidia, by contrast, is now worth about $2.9 trillion.
Intel shocked investors with a dismal earnings report last month, sending its stock price down for the first time in decades and analysts calling it the company’s worst financial report in history.
In a letter to employees, Gelsinger acknowledged that the company’s performance had drawn critical scrutiny and speculation about what might happen to the company. The only way to “silence the critics,” he said, was to get results and do a better job, and today’s announcement was one step toward that goal, he said.
“Is it enough? No. Is it substantial? Yes,” he said in an interview. “I’m recommitted. We’re going to get the important work done.”
–With assistance from Mackenzie Hawkins.
(Updates with announcement starting in 9th paragraph.)
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