CEO Pat Gelsinger’s turnaround effort just got a massive boost.

Intel shares rose in early trading on Tuesday after the chipmaker unveiled some major changes to its business model as well as details of a lucrative new deal with Amazon.

Intel (INTC) which has struggled to align some of its legacy business units with its new focus on making high-end chips, has lost billions in value so far this year and has seen its status in the Dow Jones Industrial Average called into question amid the crisis continue.

The group aims to expand its business across the AI ​​spectrum by making chips that power next-generation laptops as well as those that support client-based server processors.

It is also building and expanding a contract chip foundry business tied to President Joe Biden’s Chips Act investments under CEO Pat Gelsinger.

Intel said it would spin off its foundry business as an independent entity as part of a major overhaul for the struggling chipmaker.

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That part of the business, which has been seen as an obstacle to Intel’s broader progress, is now likely to be an independent subsidiary, Gelsinger said, with an independent board, following a planned meeting after weaker-than-expected weakness of the group. second quarter earnings.

A major deal with Amazon

Its value was also boosted late Monday by a deal with Amazon Web Services (AMZN) to make next-generation chips, as well as plans to pause construction of a massive $32 billion foundry site in Germany for at least two years.

“This expansion of our long-standing relationship with AWS reflects the strength of our process technology and delivers differentiated solutions for customers’ workloads,” Gelsinger said of the “multi-year, multi-billion dollar” deal.

“Intel’s chip design and manufacturing capabilities, combined with AWS’s comprehensive and widely adopted cloud services, AI and machine learning, will unleash innovation in our shared ecosystem and support the growth of both businesses as well as a sustainable AI supply chain internal. “, he added.

Related: Intel shares tumble as Dow status questioned amid shift decline

The group also confirmed reports of a $3 billion CHIPS and Science Act contract to develop highly sensitive components for the Defense Department and said it plans to sell part of its Altera chip business, which acquired it for $16.7 billion in 2015. they are still on track.

Cost-cutting related to its plans to delay construction in Germany, as well as infusions from DoD and Amazon contracts, could give Intel more room to devote capital to its foundry business once its independent status is established.

Foundry growth engine

In fact, CFRA senior analyst Angelo Zino believes the foundry unit could be “Intel’s only real potential growth engine.”

“Intel’s core business is under attack on multiple fronts from chipmakers (such as Nvidia, AMD and Qualcomm) in the PC and data center markets, while hyperscalers look to replace their (processors) chips designed in-house,” Zino said in a recent client note. .

Related: Analyst Says Intel May Have to Shed Key Business to Survive

“Even if Intel launches its own accelerators in 2025, we expect them to dramatically lag their peers,” he added.

The group’s second-quarter earnings reflected that assessment, as adjusted profit for the three months to June came in at 2 cents a share, well below Wall Street forecasts of 10 cents, and revenue fell 1.15% to to 12.8 billion dollars.

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Looking to the current quarter, Intel sees lower revenue in the region of $12.5 billion to $13.5 billion as it reveals plans to cut its global headcount by 15 percent — more than 15,000 people — and to suspend its quarterly dividend.

Intel shares were marked 6.8 percent higher in premarket trading to indicate an opening price of $22.34 each, a move that would still leave the stock down nearly 50 percent for the year.

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