Intel Foundry Spin-Off: Seeking Funding, AI Chip Deal

Intel announced Monday its plan to establish its foundry operations as a separate division, potentially enabling it to secure outside funding.

The semiconductor giant has invested approximately $25 billion in its foundry venture over the past two years.

The company's shares have plummeted nearly 60% in value during 2024.

Intel revealed its strategy to transform its foundry operations into an autonomous unit with its own directorate and the capability to attract external capital, as Chief Executive Officer Pat Gelsinger strives to revitalize the beleaguered chipmaker. Additionally, Gelsinger informed employees via memo that the company will divest a portion of its Altera holdings.

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Gelsinger explained that this reorganization would enable the Foundry division to "explore independent funding sources," following recent deliberations by Intel's board regarding the company's trajectory and prospects. The foundry enterprise, which Intel intends to utilize for manufacturing chips for external clients, has significantly impacted its profitability, with the company allocating roughly $25 billion to this endeavor over the previous two years.

In addition to contemplating external funding, Intel is considering spinning off the foundry business, potentially as a distinct publicly traded entity, according to an individual familiar with the matter who requested anonymity due to the confidential nature of the information.

With an independent "operating board" and a more streamlined corporate framework, the logistics of a separation become considerably more straightforward than attempting to transform a fully integrated unit into a standalone company.

Intel has witnessed a nearly 60% erosion of its market value this year, as the company has ceded market share in its core PC and data center sectors and observed Nvidia's dominance in the market for chips powering artificial intelligence workloads. In the previous month, Intel reported disappointing quarterly earnings, triggering the most severe sell-off in five decades, and announced plans to reduce its workforce by over 15% as part of a $10 billion cost-cutting initiative.

Gelsinger stated that Intel will postpone its fabrication efforts in Poland and Germany "by approximately two years based on projected market demand." The chipmaker will also scale back its plans for its Malaysian facility. U.S. manufacturing projects will remain unaffected, the company affirmed.

The company has also made progress on about half of the layoffs announced in August, according to Gelsinger.

Intel also disclosed on Monday that it had entered into an agreement with Amazon Web Services to produce custom chips for AI applications.

This development signifies a vote of confidence in Intel's endeavor to manufacture bespoke chips for companies through its foundry business, in addition to designing its own products.

It builds upon a long-standing partnership between the two companies. Amazon is a major end customer of Intel chips for powering its AWS servers and will also purchase a custom Xeon processor from Intel, the company stated.

This arrangement will also provide Intel with a new foothold in the expanding market for AI server chips. While Intel offers several products suitable for AI, including one called Gaudi 3, Nvidia has largely dominated this sector.

Amazon has been developing its own AI chips, including one called Trainium, for over five years. Companies such as Amazon, Microsoft, and Google have heavily invested in custom chips to run AI, hoping that their solutions would be more cost-effective or offer other advantages over Nvidia's general-purpose GPUs.

Intel stated that the chips would be manufactured using the company's 18A process, which is expected to enter production in 2025. Analysts anticipate that this manufacturing technology will be comparable to TSMC's forthcoming 2nm process. (The initial chips utilizing TSMC's 3nm process are currently shipping in Apple's iPhone.)

Intel indicated that it would conduct its most advanced manufacturing, including the AI chip for AWS, at its Ohio plant currently under construction.

"All attention will remain focused on us. We must compete for every advantage and execute more effectively than ever before. Because that's the only way to silence our critics and deliver the results we know we're capable of achieving," Gelsinger asserted.