Intel spins off foundry business into subsidiary, considers outside funding

Intelligence Shares rose 8% in extended trading Monday after the company said it plans to spin off its foundry business into a standalone unit with its own board and the potential to raise outside capital.

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

Gelsinger said the restructuring will allow the foundry business to “assess independent sources of funding,” and comes days after Intel’s board met to review the company’s direction and future. The foundry business, which Intel plans to use to manufacture chips for other customers, has been a major drain on the company’s bottom line, with the company spending about $25 billion on it in each of the past two years.

Intel is not only considering outside funding, but is also weighing whether to spin off its foundry business into a separate public company, according to a person familiar with the matter who declined to be named to discuss confidential information.

With an independent “board of directors” and a clearer corporate structure, the separation mechanism becomes much easier than trying to turn a fully integrated unit into a separate company.

Before the market bull run, Intel had lost nearly 60% of its value this year. The company has been shedding market share in its core PC and data center businesses and monitoring Nvidia fleeing the market for chips that power artificial intelligence workloads. In August, Intel reported disappointing quarterly results, triggering the biggest sell-off in 50 years and speak The company will lay off more than 15% of its workforce as part of a $10 billion cost-cutting plan. Gelsinger said the company is halfway through the layoffs.

Intel will also pause its manufacturing efforts in Poland and Germany “for approximately two years based on expected market demand,” Gelsinger said, and pull back plans for a factory in Malaysia. Manufacturing projects in the United States will not be affected, the company said.

Earlier on Monday, Intel awarded up to $3 billion from the Biden administration and the CHIPS and Science Act, an effort to bring chip manufacturing to the United States. The funding is for the “Secure Enclave” program, which is promoting a project between Intel and the Department of Defense.

The US government is ramping up investment in semiconductor manufacturing largely due to growing geopolitical risks surrounding Taiwan, home to the world’s largest contract chipmaker. Taiwan Semiconductor Manufacturing. US Commerce Secretary Gina Raimondo recently met with Gelsinger, who expressed frustration with domestic chipmakers’ overreliance on Taiwan Semiconductor.

In addition to the foundry announcement, Intel said it has signed an agreement with Amazon Web Services will make custom chips for AI, expanding a long-standing partnership between the two companies. Amazon is a major customer of Intel chips to power its AWS servers and will also buy custom Xeon processors from Intel, Intel said.

The move would likely give Intel a new foothold in the burgeoning AI server chip industry. While Intel has a few products that can be used for AI, including the Gaudi 3, Nvidia already controls the majority of the market.

Amazon has been developing its own AI chips, including one called Trainium, for more than five years. Microsoft And Google has also invested heavily in custom chips to run AI, with the aim of offering less expensive processors than Nvidia’s mainstream graphics processors.

Intel said it will conduct its most advanced manufacturing, including AI chips for AWS, at the Ohio factory currently under construction.

“All eyes are going to be on us,” Gelsinger said. “We need to fight for every inch and perform better than ever. Because that’s the only way to quiet the critics and deliver the results we know we’re capable of.”

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