Intel’s shares rise sharply following announcement of AI chip production for Amazon and transformation of foundry into a subsidiary

Shares of Intel are experiencing a notable surge as the market prepares to open on Tuesday, following the announcement that the chipmaker’s foundry business will be producing custom artificial intelligence chips for Amazon Web Services, in a strategic move to revitalize its operations. Intel’s CEO, Pat Gelsinger, revealed in a message to employees on Monday that the company will develop an AI fabric chip for Amazon’s cloud services arm at its foundry business, which has been facing challenges. Gelsinger stated that the foundry business would transition into a subsidiary of Intel, a decision aimed at providing clearer separation and independence for external foundry customers and suppliers, while also offering flexibility for potential independent funding sources and optimizing business growth and shareholder value.

Harlan Sur, an analyst at JP Morgan, believes that transforming the foundry business into a subsidiary represents a logical progression to enhance transparency, efficiency in decision-making, and overall improvement, which should not come as a surprise. Sur indicated that this transformation could potentially set the stage for a spin-off of the business within the next few years. As part of the restructuring, a new board consisting of independent directors will be established for the slated subsidiary.

In addition to the strategic business updates, Gelsinger provided insights into Intel’s ongoing cost-cutting initiatives. He informed that the company has made significant progress towards its goal of reducing the workforce by around 15,000 employees by the end of the year through voluntary early retirement and separation packages, with over half of the target already achieved. Gelsinger acknowledged that tough decisions lie ahead, with impacted employees set to be notified in mid-October. Furthermore, Intel is planning to scale back or exit from approximately two-thirds of its real estate holdings worldwide by the end of the year.

The market responded positively to these developments, with shares of Intel Corp. surging nearly 7% in premarket trading, reflecting investor confidence in the strategic moves and restructuring efforts being undertaken by the company.