Intel’s Deal with Amazon Brings Optimism After a Rough Quarter

After a disastrous second quarter earnings report earlier this year, Intel finally brings some good news to Wall Street. The company announced a series of strategic moves, including an Intel’s deal with Amazon Web Services (AWS) and a restructuring of its Foundry business.
Intel’s Second Quarter Struggles
The past few months have been challenging for Intel. The company’s second quarter earnings report was bleak, leading to the worst trading day for its stock in 40 years. CEO Pat Gelsinger has been under immense pressure to steer the company back on course, and these latest announcements are a step in that direction.
One of the most significant pieces of news is Intel’s agreement with AWS to produce custom chips for the cloud computing giant. This partnership is a major win for Intel, as it adds another high-profile customer to its Foundry business. Until now, Microsoft was Intel’s most prominent manufacturing customer, but adding Amazon to the roster is a significant boost to Intel’s credibility as a chip builder.
Transforming the Foundry Business
Intel is taking its Foundry business to the next level by turning it into a subsidiary company with independent directors. This move is aimed at creating a clear separation between Intel’s design and manufacturing operations. By doing so, Intel hopes to assure its foundry customers that their proprietary designs will remain confidential.
Intel also confirmed it has been awarded $3 billion in funding from the CHIPS Act. This funding is intended to help secure the domestic chip supply chain and collaborate with the Department of Defense to enhance the resilience of US technological systems. This financial boost is critical for Intel as it works to regain its footing in the competitive semiconductor market.
Restructuring and Layoffs
While there is good news, Intel is also in the midst of a massive restructuring plan. This includes laying off 15% of its workforce and putting some of its plans to build new facilities in Europe on hold. The company will complete its advanced packaging hub in Malaysia but won’t start operating the factory until demand improves.
Despite these positive developments, Intel’s stock performance remains a concern. Shares of competitors like Nvidia continue to climb, while Intel’s stock has fallen 57% year to date. Industry experts caution that while Intel’s recent moves are promising, the company is not out of the woods yet.
Boost for Intel’s Foundry Business
Intel is unique among semiconductor giants because it designs and assembles its own chips. Rivals like Nvidia, AMD, and Qualcomm rely on third-party manufacturers. Intel aims to capture market share from these competitors by making chips for both itself and third-party customers.
The agreement with Amazon helps to further establish Intel’s credibility as a chip builder. According to Patrick Moorhead, CEO and chief analyst at Moor Insights, Intel’s commitment to transparency and independent board members is a positive step. If Intel can secure the right agreements and operating rules, it has the potential to succeed in the foundry market.
External Funding Opportunities
Transforming the Foundry business into a subsidiary also opens up opportunities for external funding. This could provide the struggling business line with much-needed capital, allowing Intel to focus on manufacturing capabilities without affecting its core business performance.
Intel’s Foundry business has faced setbacks, with reports indicating that Broadcom was disappointed with test runs of Intel-built chips. However, securing AWS as a customer shows that Intel’s manufacturing is effective for certain clients.
Intel’s work with the Department of Defense highlights its importance as a supplier for critical components. CEO Pat Gelsinger has noted that semiconductor assembly plants will play a crucial role in geopolitics over the next 50 years, akin to the role of oil refineries in the past.
AI and Data Center Prospects
To ensure its future success, Intel’s AI and data center segment will need to improve. The company’s Gaudi AI processor hasn’t gained traction among hyperscalers like Amazon, Google, and Microsoft, who prefer their own AI accelerators. Intel will need to regain customer trust to compete in this space.
Intel plans to launch a new GPU in 2025 that could compete with Nvidia and AMD’s data center chips. Success will depend on whether Intel can convince customers to give its products another chance.
Client Computing Group
Intel’s Client Computing Group, responsible for processors that power desktops and laptops, remains the company’s largest revenue generator. However, it faces stiff competition from AMD and Qualcomm.
To combat competition, Intel recently launched its Core Ultra 200V line of chips. These chips promise improved performance and battery life, comparable to Apple’s custom processors. The challenge for Intel will be to ensure these chips meet customer expectations.
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