Intel Corp. says it will spin off its chip fabrication business as part of its ongoing plan to put the brakes on a yearslong decline, stem billions of dollars in losses, and prop up its tumbling stock price.

In an announcement today, Intel Chief Executive Pat Gelsinger said the plan is for Intel Foundry to become a fully independent subsidiary of the company, with “independence” from Intel itself.

The change means that Intel Foundry will set up its own board of directors and report financial earnings separately from Intel. In addition, the chipmaker said it will halt work on two factories it’s currently building in Germany and Poland, with plans to restart once there is enough market demand. However, Intel will continue to push forward with the construction of new fabs in Arizona, Ohio, Oregon and New Mexico, having just received an extra $3 billion in funding from the U.S. government.

Meanwhile, Intel is reportedly also planning to sell off part of its stake in Altera, the programmable chip business unit that it acquired back in 2015. Other aspects of the plan include reducing its global real estate footprint by about two-thirds.

According to Gelsinger, spinning off Intel Foundry as a fully independent subsidiary will enable it to evaluate independent funding sources. The decision was made days after Gelsinger and other executives met with Intel’s board of directors to assess the future of the company.

Intel had originally made the foundry business a key element of its turnaround strategy, saying a couple of years ago that it would use the business to manufacture semiconductors for other chipmakers, enabling it to compete with Taiwan Semiconductor Manufacturing Co., which makes chips but doesn’t design them itself. However, Intel Foundry has reportedly been a big drag on Intel’s finances, draining about $50 billion from its coffers over the last two years.

By spinning off Intel Foundry, Intel will hope to improve the results of its core chip design business. There is also a chance that, in the future, Intel might spin off Intel Foundry entirely as a standalone, publicly traded company, one person with knowledge of the company’s inner dealings told Reuters. With its own operating board and corporate structure in place, the mechanics of such a move would be much easier, if Intel decides to pursue such an option in future.

European chip fabs delayed

In a related move, Intel will pause its chip fabrication projects in Germany and Poland for “approximately two years, based on anticipated market demand,” Gelsinger said. The company will also abandon its plans to build a new chip fab in Malaysia, but will push ahead with its projects in the U.S.

No doubt the decision to continue building its U.S. chip fabs was motivated by the additional grant of $3 billion given to the company by President Joe Biden’s administration, as part of the CHIPS and Science Act that aims to foster the growth of a strong, domestic chipmaking market. According to Intel, the funding is earmarked for the “Secure Enclave” program, which is a collaborative project between the chipmaker and the U.S. Department of Defense, aimed at creating more secure chips for the military.

Under Biden’s administration, the U.S. has invested billions of dollars into building out its semiconductor manufacturing capacity to reduce its reliance on Taiwan, where most of the world’s chips are manufactured. The U.S. sees this reliance on Taiwan as a geopolitical risk, given China’s ambitions to reunite that territory with the mainland.

That’s why Intel is currently building four separate chip fabs in four different U.S. states. Back in March, the company received $8.5 billion from the government to accelerate those projects.

Custom AI chips for AWS

There was some good news for Intel too, with the company announcing that it has agreed a multiyear deal with Amazon Web Services Inc. to produce custom chips for artificial intelligence. The deal extends a long-running partnership with that company, with AWS being one of Intel’s biggest customers, buying millions of its central processing units to power its cloud servers each year.

The deal could potentially give Intel an entry into the lucrative market for AI chips, which is currently dominated by its rival Nvidia Corp.’s graphics processing units. Though Intel does build its own chips for AI, such as its Gaudi 3 accelerators, Nvidia’s GPUs are the preferred choice of just about everyone, hence the door to the AI chip market had essentially been slammed shut in Intel’s face.

AWS has offered its own AI chips, including one called Trainium, for years as a more affordable alternative to Nvidia’s GPUs. Google LLC and Microsoft Corp. also produce their own AI chips.

Few details about the new Amazon AI chips were revealed, but Intel said they’ll be built on its new 18A chipmaking process, which is currently being refined at one of the fabs still under construction in Ohio.

The deal should help to inspire confidence in the 18A process, which was rocked earlier this month when Reuters reported that another of Intel’s partners, Broadcom Inc., was less than satisfied with its performance during a recent evaluation. That report said Broadcom is studying whether or not it can rely on the Intel 18A process for its own chips, once it enters into production next year.

Intel has big plans for the 18A process, with Microsoft also keen to use it for its next-generation chips.

With all the news today, Intel will be hopeful that it can finally get back on track with its bid to re-establish itself as one of the world’s foremost chipmakers. The company’s fortunes have dwindled over the last five years or so, thanks in part to its failure to anticipate the rise of AI and also because of the emergence of Advanced Micro Devices Inc. as a major competitor in its traditional server and personal computer chip businesses.

In fiscal 2023, Intel’s chipmaking business racked up operating losses of more than $7 billion, and in its most recent earnings call, it disappointed investors with results that came in below expectations. Last month, the chipmaker announced it will lay off 15,000 workers in its largest-ever round of job cuts.

Analysts told SiliconANGLE that today’s moves might just be enough to put Intel on the road to recovery, helping to narrow the focus of its business and better position its chips for cloud workloads.

Holger Mueller of Constellation Research Inc. said the decision to spin off Intel Foundry will provide significant relief to the company’s balance sheet. But the brightest aspect of today’s announcements is the partnership with AWS for AI chips, he said.

“One of the root causes of Intel’s malaise has been its inability to muscle in on the public cloud with its chips, and teaming up with AWS suggests it might finally be heading in that direction,” he said.

Rob Enderle of the Enderle Group said Intel is reducing the complexity of its business, which should make it much easier to manage and balance the books. “Pat Gelsinger still needs to stabilize what remains of Intel, but this looks like a big step towards recovery,” he added.

It remains to be seen if Intel will ever be able to regain its crown as the world’s chipmaking king, but Gelsinger indicated that he’s optimistic about his chances of pulling it off.

“This is the most significant transformation of Intel in over four decades,” he said in a statement. “Not since the memory to microprocessor transition have we attempted something so essential. We succeeded then – and we will meet this moment and build a stronger Intel for decades to come.”

Photo: Intel