Intel shares rise after plan to make custom chip for Amazon

Intel Corp said Monday it has signed a contract with Amazon.com Inc.’s cloud computing unit to manufacture custom artificial intelligence chips, a deal that gives the chipmaker confidence.

Intel shares rose about 8% in extended trading Tuesday after Chief Executive Officer Pat Gelsinger issued a memo to employees announcing that Intel had secured Amazon.com Inc. as a multibillion-dollar customer and paid the Santa Clara, Calif.-based Intel Corp. for design and manufacturing services. The memo also outlined Intel’s planned cost cuts.

Amazon Web Services has already designed several chips for use in its data centers, and has tapped Intel to package at least one version. Intel will produce an “AI fabric chip” for AWS and will use the chipmaker’s 18A process, the most advanced version available to outside customers, the companies said.

Intel said it expects to offer additional designs from Amazon in the company’s upcoming 18AP and 14A manufacturing runs.

The memo also outlined a number of steps Intel will take to revive itself. Last month, the company reported disastrous second-quarter earnings.

“The board and I agreed that we have a lot of work ahead to achieve greater efficiency, improve our profitability, and enhance our competitiveness in the market,” Gelsinger wrote in the memo.

Among the steps Intel’s board decided to take is selling a stake in programmable chip maker Altera. The company also said it would halt construction of its chip factory project in Germany for two years, a move Reuters previously reported. The company also plans to halt its project in Poland.

Intel said there is no change in its plans to expand manufacturing in the United States.

Intel plans to keep its manufacturing, or foundry, business in-house, confirming an earlier Reuters report. The foundry is central to Gelsinger’s plan to transform the company, which he outlined in 2021. Even with Amazon, Intel has struggled to find high-profile customers it can discuss publicly.

But in the memo, Gelsinger said the foundry business would have greater autonomy, such as the ability to raise outside capital. Intel plans to set it up as a standalone subsidiary, with an operating board overseeing the foundry’s operation. The foundry unit separated its financial performance from its design business earlier this year.

The company is also taking several steps to prioritize the core technology behind its CPUs, and is reorganizing several divisions, including its automotive and “advanced technologies” businesses.

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Intel also said Monday it has received up to $3 billion in direct funding from the U.S. CHIPS and Science Act, as part of its Secure Enclave program.

The company said it plans to send notices in mid-October to about 15,000 employees it said in August it would lay off.

(Reporting by Max A. Cherny in San Francisco and Gopi Babu in Mexico City; Editing by Krishna Chandra Elori and David Gregorio)