Intel jumps on plan to establish Intel Foundry as an independent unit, AWS pact

Intel Corporation (NASDAQ:INTC ) announced a strategic move to set up its Intel Foundry Services (IFS) as an independent subsidiary within the company. Shares jumped more than 7% in premarket trading Tuesday.

The company said the decision is aimed at completing a process started earlier this year, involving the separation of profit and loss, as well as financial reporting for the foundry business and Intel Products.

The creation of this subsidiary is expected to offer clear benefits by providing external foundry customers and suppliers with greater separation from Intel's core operations. It also allows for potential independent funding sources and the optimization of capital structures to spur growth and shareholder value.

Pat Gelsinger, CEO of Intel, assured employees that the leadership team of Intel Foundry Services would remain unchanged and continue to report directly to him. An operating board, including independent directors, will be established to govern the subsidiary.

In a related development, Intel and Amazon (NASDAQ:AMZN ) Web Services (AWS) have entered into a multi-year, multi-billion-dollar agreement to co-invest in custom chip designs.

“This expansion of our longtime relationship with AWS reflects the strength of our process technology and delivers differentiated solutions for customer workloads,” said Gelsinger.

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

This arrangement represents a significant broadening of the existing strategic partnership between the two tech giants, aiming to empower customers to handle various workloads and boost AI application performance.

As part of the deal, Intel will manufacture an AI fabric chip for AWS using its most advanced process node, Intel 18A, and a custom Xeon 6 chip on Intel 3.

Commenting on the announcements, KeyBanc Capital Markets analysts said they were "very encouraged," praising Intel's management "for being proactive regarding the initiatives that it controls, which is namely cost."

"We're also encouraged by the decision to make IFS a separate independent subsidiary, which should reduce conflicts of interest between IFS and IDM," they added.

Still, the investment bank maintained a Sector Weight rating on Intel stock, noting that the announcements are largely focused on cost-cutting "and do not address how INTC will be able to return to growth and get to market leadership in IFS, IDM, compute, and AI."

Separately, Bernstein analysts said the AWS partnership is likely to attract the most attention, though are unsure "how much of this new framework on the product side is incremental to current business."

The collaboration between Intel and AWS is not new, with a history dating back to 2006. AWS is also contributing to the region's technological development with a planned investment of $7.8 billion to expand its data center operations in Central Ohio, adding to its significant investments in the state since 2015.

Senad Karaahmetovic contributed to this report. 

Source: Investing.com