Intel foundry business to make custom chip for Amazon, chipmaker’s shares jump

Intel’s (INTC.O), foundry, or contract manufacturing business, has signed up Amazon’s (AMZN.O), cloud services unit as a customer for making custom artificial intelligence chips, the companies said on Monday, a deal that gives the chip maker a vote of confidence.

Intel’s shares rose roughly 8% in extended trading after CEO Pat Gelsinger released a memo to employees announcing Intel had secured the Amazon unit as be 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 already designs several chips for use in its data centers and has hired Intel to package at least one version. Intel will produce an “artificial intelligence fabric chip” for AWS and use the chip maker’s 18A process, the most advanced version available for outside customers, the companies said.

Intel said it expects to make additional designs from Amazon on the company’s forthcoming 18AP and 14A manufacturing processes.

The memo also outlined a number of steps Intel would take to revive itself. Last month, it reported disastrous second-quarter earnings.

“The board and I agreed that we have a lot of work ahead to drive greater efficiency, improve our profitability and enhance our market competitiveness,” Gelsinger wrote in the memo.

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

Intel said there are no changes to its plans to expand manufacturing in the U.S.

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

But in the memo, Gelsinger said the foundry business would have greater independence, for instance being able to take outside capital. Intel plans to establish it as an independent subsidiary, with an operating board that will oversee the foundry operation. 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 is reorganizing several divisions, including its automotive and “edge” businesses.

On Monday Intel also said it was awarded up to $3 billion in direct funding from the U.S. CHIPS and Science Act, as part of the Secure Enclave program.

The company said it plans to send notices in the middle of October to the roughly 15,000 employees it said in August it would lay off.