Intel (INTC, Financial) is showing signs of a promising turnaround in its Foundry business, aiming to become a leading chip manufacturer in the U.S. Following a $3.0 billion award from the U.S. government to produce advanced chips for the Department of Defense (DoD), Intel announced a significant partnership with Amazon (AMZN, Financial) Web Services to develop a new AI chip using its 18A process.
The CEO, Pat Gelsinger, described the deal as a "multi-year, multi-billion-dollar framework," which could boost confidence in Intel's struggling Foundry unit. Speculation has been rife about Intel's plans for its Foundry business, with recent reports suggesting it might turn Foundry into an independent unit.
- Creating a separate subsidiary with its own board and directors could help Intel win new customers. Competitor chip companies might be more willing to partner with a distinct Foundry business rather than one directly tied to Intel's product lines.
- Intel might consider spinning off Foundry into an IPO, allowing both businesses to pursue independent growth strategies. Intel could still benefit by retaining an ownership stake post-IPO.
- With new DoD and Amazon contracts, Foundry's backlog is growing, albeit slower than expected. In April, Intel signed a significant customer for its 18A process, bringing its total to six, with an expected lifetime deal value exceeding $15 billion. Intel's goal remains to become the world's second-largest foundry by 2030.
- Reports also indicate that Intel is pausing plans to build new fab facilities in Poland and Germany for two years. Additionally, about half of the workforce reduction initiatives, part of a $10.0 billion cost reduction plan announced in August, have been completed.
While Intel has not yet caught up with competitors like Advanced Micro Devices (AMD, Financial) and NVIDIA (NVDA, Financial), recent developments signify meaningful progress for its Foundry business.
