6 Big Intel Changes, Wins Outlined By CEO: AWS Chip Deal, Independent Foundry, Factory Delays

In a Monday letter to employees, Intel CEO Pat Gelsinger outlined changes that will help the beleaguered chipmaker save billions of dollars and bounce back financially while highlighting a new multibillion-dollar chip deal with Amazon Web Services.

Intel CEO Pat Gelsinger said the company plans to turn its contract chip manufacturing business into an independent subsidiary, among other changes he laid out that will help the beleaguered chipmaker save billions of dollars and bounce back financially.

Gelsinger outlined the changes in a Monday letter to employees, made public on Intel’s website, and said they are happening after he met with the chipmaker’s board of directors last week on how to cut more than $10 billion in costs, as Intel revealed on Aug. 1, while improving its profitability and competitiveness.

The Santa Clara, Calif.-based company announced the spending reduction plan, which includes the elimination of more than 15,000 jobs, in response to worsening financial conditions, which included a $1.6 billion net loss and lower-than-expected revenue in the second fiscal quarter.

“As I’ve said before, this is the most significant transformation of Intel in over four decades. Not since the memory to microprocessor transition have we attempted something so essential. We succeeded then—and we will meet this moment and build a stronger Intel for decades to come,” he wrote in his letter.

Gelsinger also highlighted Monday announcements regarding a new, multibillion-dollar strategic collaboration with Amazon Web Services for chip design and manufacturing as well as federal funding for up to $3 billion from the U.S. government’s Secure Enclave Program.

Intel’s stock price was up more than 7 percent in after-hours trading. Before Intel’s shares went up at market close, the company’s stock price was down a little more than 56 percent since the beginning of the year.

What follows are the six changes and wins outlined for Intel by Gelsinger, which include the AWS and U.S. Secure Enclave announcements, the move to make Intel Foundry an independent subsidiary, the delay of new plants starting operations or construction outside of the United States., a reorganization of certain product groups driven by a prioritization of Intel’s x86 and AI strategies.

Intel Wins Deal To Design, Manufacture Custom AWS Chips

Intel announced a “multi-year, multibillion-dollar framework” where it will design and manufacture custom chips for Amazon Web Services.

The two companies said they will co-invest in the custom chips as a “significant expansion” of their “longstanding strategic collaboration.”

As part of the deal, Intel plans to manufacture an AI fabric chip for AWS on Intel 18A, which is the advanced chip-making node that the semiconductor giant has said will allow it to leapfrog Asian foundry giants TSMC and Samsung in process performance by next year as part of Gelsinger’s comeback plan.

The chipmaker said it also plans to manufacture a custom Xeon 6 chip on the Intel 3 node, which entered mass-manufacturing this year.

The two companies said the deal leaves open the possibility for Intel to work with AWS on additional custom chip designs as well as existing Intel designs using Intel 18A and next-generation nodes like Intel 18AP and Intel 14A.

Gelsinger said the deal will help both companies grow while supporting a “sustainable domestic AI supply.”

“This expansion of our longtime relationship with AWS reflects the strength of our process technology and delivers differentiated solutions for customer workloads,” Gelsinger said in a statement.

AWS CEO Matt Garman said the continued collaboration between Intel and the cloud computing giant will empower their joint customers “with the ability to run any workload and unlock new AI capabilities.”

Both companies said the new strategic collaboration will accelerate manufacturing in the United States, namely in Ohio, where Intel is building new chip fabrication plants and AWS is investing $7.8 billion to expand data center options.

“Today’s announcement furthers Intel’s commitment to U.S. manufacturing sites, like Ohio’s, as well as AWS’s commitment to its nearly decade-long investment in our state,” Ohio Governor Mike DeWine said in a statement.

Intel To Make Foundry An Independent Subsidiary

Intel plans to make its contact chip manufacturing business, Intel Foundry, into an independent subsidiary after separating the division financially from the company’s chip design businesses at the beginning of the year.

In his letter to employees, Gelsinger said this move will give Intel Foundry customers and suppliers “clearer separation and independence from the rest of Intel,” namely its product businesses, like the Data Center and AI Group.

The CEO said it will also give Intel the ability to raise funding from outside groups and “optimize the capital structure of each business to maximize growth and shareholder value creation.”

While this will not result any leadership changes for Intel Foundry, the contract chip-making business will gain an operating board that includes independent directors as part of the semiconductor giant’s to push for “greater transparency, optimization and accountability across the business,” according to Gelsinger.

When Intel marked the official launch of Intel Foundry in February, the company emphasized that its decision to financially separate the contract chip-making division from its chip design businesses will show potential and existing” customers that Intel Foundry is independent from the rest of intel.

“It helps our customers feel the trust because we’re now independent, we can make decisions about capacity allocations, technology, preferences and so on independently based on what’s best for that [business with a profit and loss statement],” Intel executive Craig Orr said at the time.

Intel Wins Up To $3 Billion From Biden Administration

Intel said it has been awarded up to $3 billion by the Biden administration to help the U.S. military improve its capabilities and secure a domestic supply chain.

The Secure Enclave program is part of the U.S. CHIPS and Science Act, but the funding is separate from the proposed multibillion-dollar funding agreement Intel reached with the White House to expand its domestic manufacturing footprint.

The chipmaker said the Secure Enclave program is an evolution of projects Intel has done with the U.S. Department of Defense, such as the Rapid Assured Microelectronics Prototypes – Commercial (RAMP-C) project.

Chris Geoge, head of Intel Federal, said the “ongoing collaboration” will help “strengthen America’s defense and national security systems.”

“Today’s announcement highlights our joint commitment with the U.S. government to fortify the domestic semiconductor supply chain and to ensure the United States maintains its leadership in advanced manufacturing, microelectronics systems, and process technology,” he said in a statement.

Intel To Pause New European Projects

Intel said it’s pausing the build-out of a new chip fabrication plant campus in Germany and an assembly and test facility in Poland by two years.

The company said it’s also indefinitely delaying the startup of a new advanced chip packaging factory in Malaysia.

In his Monday letter to employees, Gelsinger said the chipmaker made these adjustments to its global expansion plans as part of what he called a “shift from a period of accelerated investment to a more normalized cadence of node development and a more flexible and efficient capital plant.”

What prompted this shift, according to Gelsinger, was the company’s transition to the use of extreme ultraviolet lithography (EUV), which is the advanced chip-making technology Intel adopted with its Intel 7 node.

In light of Intel deciding to slow down the construction of new facilities in Europe “based on anticipated market demand,” Gelsinger said that the company’s recently expanded fab in Ireland will remain its “lead European hub for the foreseeable future.”

However, he noted that Malaysia “remains an active design and manufacturing hub,” He added that Intel is making no changes to its other manufacturing locations, including its projects in Arizona, Oregon, New Mexico and Ohio.

Intel Refocuses On x86 Franchise, Reorganizes Some Groups

Gelsinger said Intel must refocus on its “strong x86 franchise” as the company executes its AI strategy across the client, edge and data center markets.

In his Monday letter to employees, Gelsinger added that Intel’s AI investments—which include Core Ultra chips for AI PCs, Xeon CPUs with AI features for data centers and Gaudi accelerator chips—“will leverage and complement our x86 franchise with a focus on enterprise, cost-efficient inferencing.”

At the same time, the company plans to reorganize some of its product groups as part of a move to simplify its portfolio.

This reorganization includes moving Intel’s edge and automotive businesses into the Client Computing Group, which will allow the company to take advantage of its AI PC “leadership” for a “wide range of vertical edge solutions.”

The Network and Edge Group, in the meantime, will sharpen its focus on networking and telecommunications while its integrated photonics solutions will move under the Data Center and AI Group.

In addition, Intel plans to integrate its software and incubation businesses into its core business units to “foster more integrated roadmaps, unlock efficiencies and create value,” according to Gelsinger.

Intel To Lay Off Thousands, Reduce Real Estate Footprint

Gelsinger said Intel plans to lay off thousands of employees after the company reduced more than half of the 15,000 jobs it targeted for elimination through early retirement packages and voluntary buyouts.

“We still have difficult decisions to make and will notify impacted employees in the middle of October,” the CEO said in his Monday letter to employees.

Gelsinger added that the company plans to “reduce or exit about two-thirds” of its global real estate footprint by the end of the year.

He also reiterated Intel’s plan to sell a stake in its Altera programmable chip business and push for an initial public offering of the unit, echoing a statement Altera CEO Sandra Rivera made to CRN in an interview last week.

“All eyes will remain on us. 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,” Gelsinger said.