(Sept 17): Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s AWS as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. 

Intel and AWS will coinvest in a custom semiconductor for artificial intelligence computing - what’s known as a fabric chip - in a “multiyear, multibillion-dollar framework,” according to a statement Monday. The work will rely on Intel’s 18A process, an advanced chipmaking technology.

The shares jumped more than 8% in late trading after the announcement. They had been down 58% this year, closing at US$20.91 (RM89.86) on Monday.

“Today’s announcement is big,” Gelsinger said in an interview. “This is a very discerning customer who has very sophisticated design capabilities.”

The news was part of a flurry of announcements that followed a pivotal board meeting last week. Intel also is postponing new factories in Germany and Poland, but remains committed to its US expansion in Arizona, New Mexico, Oregon and Ohio.

Gelsinger, who embarked on a bold comeback effort for Intel in 2021, has had to scale back some of his ambitions in the name of efficiency. With sales shrinking and losses piling up, the company announced plans last month to slash 15,000 workers, find US$10 billion in cost savings and suspend Intel’s dividend. Now he’s going further to rein in expansion plans, especially overseas.

The Poland and Germany construction projects will be paused for about two years depending on market demand. Another one in Malaysia will be completed but only put into operation when conditions support it, Intel said.

At last week’s three-day board meeting, executives presented options on how to conserve cash while keeping Gelsinger’s turnaround plan on track. The CEO’s effort hinges on transforming Intel into a so-called foundry, a chipmaker that manufacturers products for outside customers. The Santa Clara, California-based company has been slow to line up customers for the project - and a high-profile client such as Amazon represents a notable win.

Intel also is looking to speed up efforts to execute the US$10 billion in cost savings and focus its products better on AI computing, an area where rival Nvidia Corp. has excelled. It’s also looking to pare its real estate globally by about two-thirds by the end of the year.

And the company reiterated plans to sell part of its stake in Altera Corp to private equity investors. The business, which Intel bought in 2015, was separated from its operations last year with the goal of taking it public.

Amazon Web Services is the largest provider of cloud computing, and it could help build confidence that Intel can compete with the likes of foundry leader Taiwan Semiconductor Manufacturing Co AWS has used Intel processors over the years, but has been shifting more toward in-house designs - the very products that Intel may now help manufacture.

Microsoft Corp, another major cloud-computing provider, announced plans in February to use Intel for some of its in-house chips as well.

Another change: Intel’s foundry operations, referred to as IFS, will be further separated from the rest of the company and become a wholly owned subsidiary. That move is aimed in part at convincing prospective customers - some of whom compete with Intel - that they are dealing with an independent supplier. Bloomberg reported earlier on a potential foundry separation.

“We still have things to learn about becoming a foundry,” Gelsinger said in the interview. “I need lots of customers.”

In another win, Intel said earlier Monday that it’s eligible to receive as much as US$3 billion in US government funding to manufacture chips for the military. The effort, called the Secure Enclave, aims to establish a steady supply of cutting-edge chips for defense and intelligence purposes. That news helped send the shares up 6.4% in regular trading Monday.

The Secure Enclave award is separate from a possible US$8.5 billion Chips and Science Act grant that Intel is set to receive to support factories across four US states. The projects include a facility in New Albany, Ohio, that Intel has said could become the world’s largest chipmaking operation.

Intel still has a long way to go to win back Wall Street’s full confidence. After years of losing ground to rivals and seeing its technological edge slip, the Silicon Valley pioneer is valued at less than US$90 billion. It no longer ranks as one of the top 10 chip companies on that basis. Nvidia, meanwhile, now has a market capitalisation of about US$2.9 trillion.

Intel shocked investors with a bleak financial report last month, triggering the biggest single-day stock decline in decades. Analysts described the announcement as Intel’s worst-ever earnings report.

Gelsinger, in a letter to employees, acknowledged that the chipmaker’s performance has drawn negative scrutiny - and spurred speculation over what might happen to the company. The only way to “quiet our critics” will be to deliver results and execute better, he said. Today’s announcements are a step toward that, he said.

“Is it good enough? No. Is it substantial? Yes,” he said in the interview. “I’ve reupped my commitment. We’re going to finish a seminal assignment.”

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