(Bloomberg) — Shares of Intel Corp. surged for the second day straight after the problem chipmaker made a raft of announcements, spurring optimism that the turnaround plan has begun to bear fruit.
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In its most significant move, the company struck a multibillion-dollar deal with Amazon.com Inc.’s Amazon Web Services cloud unit. to invest in specialized AI semiconductors. Intel could also receive $3 billion in US government funding to make chips for the military. And turn an ailing manufacturing business, or foundry, into a wholly owned subsidiary.
But the chipmaker is pulling back in some areas as well. Intel says it’s scrapping plans for new factories in Germany and Poland — at least for now.
The news follows Intel’s board meeting last week, during which executives presented ways to save cash while maintaining Chief Executive Officer Pat Gelsinger’s long-term turnaround plan. The CEO’s efforts depend on turning Intel into a foundry, but the Santa Clara, California-based company has been slow to line up customers. High-profile clients such as Amazon represent significant wins.
Intel shares jumped as much as 8% to $22.58 on Tuesday, after a 6.4% gain the previous day. They have dropped more than 60% at the end of last week.
Gelsinger, who is launching a comeback effort for Intel in 2021, has had to scale back some of his ambitions in the name of efficiency. With shrinking sales and losses, the company announced plans last month to cut 15,000 jobs, seek $10 billion in cost savings and suspend Intel’s dividend. Now they will continue their expansion plans, especially overseas.
Polish and German construction projects will be halted for about two years depending on market demand. Another one in Malaysia will be completed but can only be used when conditions support it, Intel said.
The German plant’s suspension marks a setback for the European Union’s semiconductor ambitions and is likely to fuel a row in Berlin over where to allocate €10 billion ($11 billion) in earmarked subsidies.
Although Intel froze work on new factories in Germany and Poland, it said it remains committed to US expansion in Arizona, New Mexico, Oregon and Ohio.
The move to separate Intel’s foundry operations from the rest of the company aims in part to convince potential customers – some of which compete with Intel – that they are dealing with its suppliers. Bloomberg previously reported that the company is considering this option.
“We still have to learn how to be a foundry,” Gelsinger said in the interview. “I need a lot of customers.”
Intel is also looking to accelerate its efforts to implement $10 billion in cost savings and focus more of its products on AI computing, an area where rival Nvidia Corp. And it expects to reduce real estate around the world by about two-thirds by the end of the year.
In addition, the company again plans to sell a stake in semiconductor maker Altera Corp. to private equity investors. The business, which Intel bought in 2015, was spun off from operations last year with the intention of taking it public.
Amazon Web Services is the largest provider of cloud computing, and could help build confidence that Intel can compete with foundry leader Taiwan Semiconductor Manufacturing Co. AWS has been using Intel processors for years, but has moved further into in-house designs – products that Intel can now help support.
The two companies will invest in semiconductors specifically for artificial intelligence computing — known as fabric chips — in a “multiyear, multibillion-dollar framework,” according to a statement Monday. Work will depend on Intel’s 18A process, an advanced chipmaking technology.
“Today’s announcement is huge,” Gelsinger said Monday of the deal. “These are smart customers who have sophisticated design capabilities.”
Microsoft Corp., another major cloud computing provider, announced plans in February to use Intel for some of its internal chips as well.
In another victory, Intel said on Monday it was eligible to receive $3 billion in US government funding to make chips for the military. The effort, called Secure Enclave, aims to provide advanced chip supplies for defense and intelligence purposes. The news helped spark a rally on Monday.
The Secure Enclave award is separate from the possible $8.5 billion Chips and Science Act that Intel will receive to support factories in four US states. The project includes a facility in New Albany, Ohio, that Intel says could become the largest chip-making operation in the world.
Intel still has a long way to go to win back the full confidence of Wall Street. After years of losing out to rivals and seeing the edge of technology, the Silicon Valley pioneer is worth less than $100 billion. It no longer ranks as one of the top 10 chip companies on the basis. Nvidia, currently, has a market capitalization of around $2.9 trillion.
Intel surprised investors with a dismal financial report last month, prompting the stock’s biggest one-day drop in decades. Analysts described the announcement as Intel’s worst ever earnings report.
Gelsinger, in a letter to employees, admitted that the chipmaker’s performance has drawn negative scrutiny – and spurred speculation about what could happen to the company. The only way to “silence the critics” is to produce results and do better, he said. This week’s announcement is a step in that direction, he said.
“Is it good enough? Not. Is it substantial? Yes,” he said in an interview. “I have fulfilled my commitment. We will complete an important task.”
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