Intel Announces Plan to Turn Foundry Business Into A Subsidiary, Allowing for Fund Raising From Outside

In a move to reinvigorate its competitive edge in the chip market, Intel on Monday announced a significant restructuring plan, which saw its shares surge by 8% in extended trading. The tech giant is set to transform its foundry business into an independent unit with its own board, with the potential to raise outside capital.

This shift is part of CEO Pat Gelsinger’s broader strategy to turn around Intel’s performance, which has faltered amid increased competition and market share losses.

Intel’s foundry division, a critical part of its operations responsible for manufacturing chips for other customers, has been a financial burden. The company has poured around $25 billion into the business over the last two years, and despite the investment, it has dragged down Intel’s profitability.

In a memo to employees, Gelsinger explained that this restructuring would allow the foundry business to explore “independent sources of funding.” Additionally, Intel plans to sell off part of its stake in Altera, a company it acquired in 2015 to boost its position in the programmable chip market.

This move comes after Intel’s board met recently to evaluate the company’s future direction, with discussions reportedly including a potential spin-off of the foundry unit. If spun off into a separate publicly traded company, the foundry business would likely have more operational freedom and financial flexibility.

According to an unnamed source who spoke to CNBC, Intel has been actively considering this path, which would allow it to streamline its corporate structure and simplify the process of separating the unit from the rest of the company.

A Company in Crisis

Intel’s struggles have been significant, with its stock plummeting nearly 60% over the past year. The company has been steadily losing market share in its core businesses, including personal computers (PCs) and data centers, while Nvidia has dominated the growing market for AI-focused chips.

In August, Intel reported a particularly disappointing quarter, triggering its sharpest stock sell-off in five decades. In response to this, Intel initiated a $10 billion cost-reduction plan that includes laying off more than 15% of its workforce. Gelsinger noted that the layoffs are already halfway completed.

Beyond the layoffs, Intel is also hitting pause on several international projects. The company announced it would delay its fabrication plans in Poland and Germany by roughly two years, citing expected market demand. Plans for its Malaysian factory are also being scaled back. However, Intel’s U.S.-based manufacturing projects will proceed without interruption.

Boost from the CHIPS Act

In a timely boost to its domestic operations, Intel secured up to $3 billion in funding from the Biden administration’s CHIPS and Science Act. This initiative is part of the U.S. government’s push to reduce reliance on foreign semiconductor production, especially given the increasing geopolitical risks surrounding Taiwan, home to Taiwan Semiconductor Manufacturing (TSMC), the world’s largest contract chipmaker.

The funds are earmarked for Intel’s “Secure Enclave” program, a project tied to the Department of Defense. U.S. Commerce Secretary Gina Raimondo has been actively engaging with Intel’s leadership, and Gelsinger has reportedly expressed concerns about the U.S. semiconductor industry’s dependence on TSMC. The U.S. government’s support reflects a growing focus on bolstering domestic chip production as a matter of national security.

Expanding AI Ambitions with Amazon

Further cementing its plans for the future, Intel revealed a new deal with Amazon Web Services (AWS), one of its key customers. The agreement will see Intel produce custom chips for AWS, specifically targeting the rapidly expanding market for artificial intelligence (AI) workloads. This collaboration will also extend their long-standing partnership, as Amazon has used Intel chips for its AWS servers for years.

Under the deal, AWS will purchase custom Xeon processors from Intel, and the two companies will work on AI chips, potentially giving Intel a much-needed foothold in the increasingly competitive AI server chip market. While Intel has several products designed for AI, including the Gaudi 3, Nvidia has taken a commanding lead in this space, and Intel is under pressure to catch up.

Interestingly, Amazon has been developing its own AI chips for over five years, including one called Trainium, underscoring the competition Intel faces even within its own partnerships. Microsoft and Google are also heavily invested in custom chips to run AI, attempting to offer cheaper alternatives to Nvidia’s general-purpose GPUs.

Intel plans to carry out its most advanced manufacturing, including the AWS AI chips, at its plant in Ohio, which is still under construction. This facility, part of Intel’s massive investment in U.S. semiconductor manufacturing, is expected to play a pivotal role in the company’s future.

Gelsinger’s Bold Vision

Gelsinger is determined to change Intel’s trajectory and silence the growing chorus of critics. In his memo, he acknowledged the challenges ahead: “All eyes will remain on us,” Gelsinger said. “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.”

Intel’s restructuring and the potential spin-off of its foundry business represent a strategic pivot at a critical time. By shedding its reliance on integrated operations and seeking outside investment, Intel could unlock new financial opportunities and refocus on its core strengths.

However, the road to recovery is a steep one. Its once-unshakeable grip on the global semiconductor industry has been loosened, leaving a void that Nvidia has eagerly filled. Now, the company aims to prove to investors and the industry that it can once again be a big player, by attempting to carve out a fresh path—through spinning off its foundry business.

The restructuring, layoffs, and cost cuts are just the beginning. Analysts believe that for Intel to truly rebound, it must execute flawlessly on its ambitious goals, from manufacturing advanced AI chips to scaling up U.S. production facilities.