Intel stock pops on plans for its foundry business to make custom chips for Amazon

(Reuters) – Intel's ( INTC ) foundry, or contract manufacturing business, has signed up Amazon's ( AMZN ) cloud services unit as a customer to make custom artificial intelligence chips, the companies said on Monday, a deal that gives the chipmaker a vote. of confidence

Intel shares rose roughly 8% in extended trading Tuesday after CEO Pat Gelsinger released a memo to employees announcing that Intel had secured the Amazon unit as a multibillion-dollar customer, paying Santa Clara, California-based Intel for design services and manufacturing. The memo also outlined Intel's planned cost cuts.

Amazon's AWS cloud computing division has already designed several chips for use in its data centers and has hired Intel to package at least one version. Intel will build an “artificial intelligence fabric chip” for AWS and use the chipmaker's 18A process, the most advanced version available to outside customers, the companies said.

Intel said it expects to build additional designs from Amazon into the company's upcoming 18AP and 14A manufacturing processes.

The memo also outlined several steps Intel is taking to revitalize itself. Last month, it reported disastrous second quarter earnings.

“The board and I agree that we have much work ahead of us to drive greater efficiency, improve our profitability and increase our market competitiveness,” Gelsinger wrote in the memo.

Among the steps the board decided to take, Intel is selling a stake in its programmable chip business Altera. It also said it would suspend construction for two years on its chip factory project in Germany, a move Reuters previously reported. The company also plans to close its projects in Poland.

Intel said there is no change in plans to expand manufacturing in the US

Intel plans to keep its manufacturing business, or foundry, inside the company, confirming earlier reporting by Reuters. The foundry business is crucial to Gelsinger's turnaround plan for the company, which he outlined in 2021. Until Amazon, Intel struggled to find marquee customers it could discuss publicly.

But in the memo, Gelsinger said the foundry business would have more freedom, such as being able to take outside capital. Intel plans to establish it as an independent subsidiary, with an operating board that will oversee foundry operations. The foundry unit separated its financial performance from the design business earlier this year.

The company is also taking several steps to prioritize the core technology behind its central processing units (CPUs) and restructuring several divisions, including its automotive and “edge” businesses.

Intel also said on Monday it had been awarded up to $3 billion in direct funding from the US Chips and Science Act as part of the Secure Enclave program.

The company said it plans to send notices in mid-October to about 15,000 employees it said it would lay off in August.

(Reporting by Max A. Cherney in San Francisco and Jubi Babu in Mexico City; Editing by Krishna Chandra Iluri and David Gregorio)