The chip maker is creating an independent subsidiary for its manufacturing business to reassure customers
Intel Corp.'s plans to create an independent subsidiary for its foundry business was a much-needed move aimed at convincing potential customers that they can trust their chip designs with a competitor's manufacturing arm.
In the wake of a company board meeting last week, Intel (INTC) on Monday said it would make its foundry an independent subsidiary with its own board of directors. The chip giant also signed a multibillion-dollar, multiyear agreement with Amazon.com Inc.'s (AMZN) Web Services business (AWS) to make some of its chips for artificial-intelligence data centers - helping fuel potentially the biggest two-day jump in Intel's shares in 22 years.
AWS's AI fabric chip will be made using Intel's latest manufacturing process called 18A, which is nearly complete. Separately, Intel is also developing a custom Xeon 6 server chip for AWS.
Since Intel announced its foundry strategy when Pat Gelsinger was named chief executive over three years ago, the company has not been able to attract a big volume of customers for its manufacturing business. Its biggest customer to date so far has been Microsoft Corp. (MSFT), and some in the industry have said competitors are nervous about giving over their intellectual property, among other concerns that come up with having a company that is also a competitor building their chips.
"It provides our external foundry customers and suppliers with clearer separation and independence from the rest of Intel," Gelsinger said in a statement Monday about the new subsidiary structure. "Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation."
Pat Moorhead, CEO and chief analyst at Moor Insights & Strategy, said that the move should help clear up concerns for potential customers, but that the proof will be in the execution.
"If this company looks like a separate entity, [and] if the independent board members are the right people, this could move people who are on the edge forward," Moorhead said. "They could now have a better shot at getting companies like Apple (AAPL), Qualcomm (QCOM), Broadcom (AVGO), and potentially even AMD (AMD)" - although he added that Advanced Micro Devices Inc. would likely be the very last to sign up with longtime rival Intel.
If working with Intel goes well for Amazon, Moorhead said, the company also has other chips that Intel could manufacture in the future - such as its Graviton processor and its AI accelerator chip for machine learning, Trainium.
Intel also announced other plans, such as reducing or exiting about two-thirds of its real estate worldwide by the end of the year; putting its German and Polish plants on hold for two years to determine their future; and streamlining its product lines to focus on its x86 architecture and AI.
The company, however, needs to move swiftly to get its house in order. Analysts and former executives have said that Intel has been moving too slowly to implement Gelsinger's original plans. On top of that, with AI currently the obsession of nearly every company and their IT departments, it has been struggling to show its continued relevancy.
Read: Intel's big turnaround plan is looking very expensive and poorly timed.
For weeks, there had been rumors and speculation over whether Intel would spin off or sell its foundry business, which is expensive and dragging down its profits. Intel and its board has come up with what looks like the wisest decision in dealing with its current conundrum - but execution and expediency will be the key to getting more new customers and finding success.
-Therese Poletti
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