Intel to build chip factory, strike deal with AWS to produce AI chips

Intel Corp. has announced a major customer win and changes to its chipmaking business, as the struggling chipmaker looks to transform.

Intel is taking steps to spin off its chip manufacturing division, Intel Foundry, into an independent subsidiary, according to Intel CEO Patrick Gelsinger. He said in a blog post,Intel Foundry’s leadership will remain unchanged, and its subsidiary will remain within Intel. However, Intel Foundry will have an operating board with independent members.

Gelsinger also said the company would pause chip manufacturing projects in Poland and Germany for two years “based on anticipated market demand,” and would consider rolling back chip packaging and testing operations in Malaysia. Intel has previously pledged to spend more than $36 billion to build semiconductor factories in Magdeburg, Germany, $4.6 billion on a chip factory near the Polish city of Wroclaw, and $7 billion on its Malaysian footprint.

But in a win for the foundry industry, Gelsinger revealed that Intel has signed an agreement with AWS to develop an AI chip using Intel’s 18A chip manufacturing process. Intel has also agreed to produce a custom Xeon 6 processor for AWS, building on an existing partnership between the two companies.

“We have tripled our deal pipeline since the beginning of the year,” Gelsinger said. He said The deal with Amazon Web Services is a “multi-year, multi-billion dollar framework” that could include additional chip designs, Intel Foundry CEO Tim Cook said. The deal “demonstrates the continued progress we’re making to build a world-class foundry business,” he added.

Intel’s cost-cutting efforts and deal-making efforts — along with a new $3.5 billion contract to make chips for the U.S. Department of Defense — sent the company’s shares up more than 6% at market close. It’s a bright spot in Intel’s otherwise bleak fiscal year.

In the first quarter, Intel reported a net loss of $437 million — a loss that widened to $1.6 billion in the second quarter. Intel Foundry reported an operating loss of $5.3 billion in the first half, despite a slight increase in revenue year-over-year.

Intel also reported that lost On a major customer, Sony, after failing to reach a deal to manufacture chips for Sony’s next PlayStation console. The partnership would have contributed an estimated $30 billion to Intel’s factory business, According to To Reuters.

Intel this summer announced a $10 billion cost-cutting plan that included laying off 15,000 employees through severance and early retirement offers. (Intel says it’s more than halfway through the process and expects to wrap it up by the end of the year.) The chipmaker is also reportedly considering selling its self-driving arm Mobileye and its enterprise networking division.