(Bloomberg) -- Intel Corp. shares surged for the second straight day after the troubled chipmaker made a raft of announcements, spurring optimism that a turnaround plan is starting to bear fruit.
In the most notable move, the company struck a multibillion-dollar deal with Amazon.com Inc.’s Amazon Web Services cloud unit to coinvest in a custom AI semiconductor. Intel also may receive as much as $3 billion in US government funding to make chips for the military. And it’s turning its ailing manufacturing business, or foundry, into a wholly owned subsidiary.
But the chipmaker is pulling back in some areas as well. Intel said it would shelve plans for new factories in Germany and Poland — at least for now.
The news follows a meeting of Intel’s board last week, during which executives presented ways to conserve cash while keeping Chief Executive Officer Pat Gelsinger’s longer-term turnaround plan on track. The CEO’s effort hinges on transforming Intel into a foundry, but the Santa Clara, California-based company has been slow to line up customers. A high-profile client such as Amazon represents a significant win.
Intel shares jumped as much as 8% to $22.58 on Tuesday, following a 6.4% gain the day before. They had been down more than 60% through the end of last week.
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 $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.
The postponement of the German factory marks a setback for the European Union’s semiconductor ambitions and is likely to reignite controversy in Berlin over where to allocate €10 billion ($11 billion) in earmarked subsidies.
Although Intel is freezing work on new factories in Germany and Poland, it said it remains committed to its US expansion in Arizona, New Mexico, Oregon and Ohio.
The move to separate Intel’s foundry operations from the rest of the company is aimed in part at convincing prospective customers — some of whom compete with Intel — that they are dealing with an independent supplier. Bloomberg had previously reported that the company was weighing this option.
“We still have things to learn about becoming a foundry,” Gelsinger said in the interview. “I need lots of customers.”
Intel is also looking to speed up efforts to execute the $10 billion in cost savings and focus its products better on AI computing, an area where rival Nvidia Corp. has excelled. And it hopes to pare its real estate globally by about two-thirds by the end of the year.
Additionally, the company reiterated plans to sell part of its stake in semiconductor maker 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.
The two companies 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.
“Today’s announcement is big,” Gelsinger said Monday of the deal. “This is a very discerning customer who has very sophisticated design capabilities.”
Microsoft Corp., another major cloud-computing provider, announced plans in February to use Intel for some of its in-house chips as well.
In another win, Intel said earlier Monday that it’s eligible to receive as much as $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 trigger the rally on Monday.
The Secure Enclave award is separate from a possible $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 $100 billion. It no longer ranks as one of the top 10 chip companies on that basis. Nvidia, meanwhile, now has a market capitalization of about $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. This week’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.”