Intel to build custom AI chip for Amazon’s AWS

Intel and AWS will jointly invest in a custom semiconductor for artificial intelligence computing — what’s known as a chip fabric — in a “multi-year, multibillion-dollar framework,” according to a statement Monday. The work will be based on Intel’s 18A process, an advanced chip manufacturing technology.

Shares rose more than 8 percent in late trading after the announcement. They are down 58% this year, closing at $20.91 on Monday.

“Today’s announcement is big,” Gelsinger said in an interview. “This is a very demanding client that has very sophisticated design capabilities.”

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

Gelsinger, who embarked on a bold comeback effort for Intel in 2021, had to scale back some of his ambitions in the name of efficiency. With sales falling and losses mounting, the company last month announced plans to cut 15,000 jobs, find $10 billion in savings and suspend Intel’s dividend. It is now moving on to control expansion plans, especially overseas.

Construction projects in Poland and Germany will be discontinued for approximately two years, depending on market demand. Another in Malaysia will be completed, but will only be operational when conditions support it, Intel said.

At last week’s three-day board meeting, executives presented options on how to conserve cash while maintaining Gelsinger’s turnaround plan. The CEO’s effort is based on turning Intel into a so-called foundry, a chipmaker that produces products for external customers. The Santa Clara, Calif.-based company has been slow to line up clients for the project — and a high-profile client like Amazon is a notable win.

Intel is also looking to accelerate efforts to execute on $10 billion in cost savings and better focus its products on computer AI, an area where rival Nvidia Corp. he excelled. It is also looking to reduce its global real estate holdings by about two-thirds by the end of the year.

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

Amazon Web Services is the largest cloud computing provider and could help boost confidence that Intel can compete with foundry leader Taiwan Semiconductor Manufacturing Co. AWS has used Intel processors over the years, but has been more internally oriented. design – the very products that Intel can now help produce.

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

Another change: Intel’s foundry operations, called IFS, will be further separated from the rest of the company and become a wholly owned subsidiary. The move is partly aimed at convincing potential customers — some of whom compete with Intel — that they’re dealing with an independent vendor. Bloomberg previously reported on a possible spinoff from the foundry.

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

In another win, Intel said earlier Monday that it was eligible to receive up to $3 billion in US government funding to make chips for the military. The effort, called the Secure Enclave, aims to establish a steady supply of state-of-the-art chips for defense and intelligence purposes. The news helped push shares up 6.4% in regular trading 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 in four US states. The projects include a facility in New Albany, Ohio, that Intel has said could become the world’s largest chip manufacturing operation.

Intel still has a long way to go to regain the full confidence of Wall Street. After years of losing ground to rivals and seeing its technological lead shrink, the Silicon Valley pioneer is valued at less than $90 billion. It no longer ranks as one of the top 10 chip companies on this basis. Nvidia, meanwhile, now has a market cap of about $2.9 trillion.

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

Gelsinger, in a letter to employees, acknowledged that the chipmaker’s performance had drawn negative attention — and fueled speculation about what might happen to the company. The only way to “quiet our critics” will be to get results and execute better, he said. Today’s announcements are a step in that direction, he said.

“Is it good enough? Not. Is it substantial? Yes,” he said in the interview. “I renewed my commitment. We will complete a fundamental mission.”

(Updates with more from announcements starting in the ninth paragraph.)