Intel’s stock price went through the roof after the company said it was going to split off its AI-focused foundry business into a separate division. We think that this strategy choice will help Intel get outside funding and streamline its operations even though it is having a hard time with money. Over the past year, Intel has lost billions of dollars and seen its stock price drop by almost 45%.
In a memo from September 16, Intel CEO Patrick Gelsinger said that the foundry would have its own board of directors and be able to run on its own, giving it the freedom to seek funds from outside sources. For Intel, this change comes at a very important time. Intel has been a major player in the chip and computer processing fields for a long time. But Nvidia, which has been the leader in AI chips, is becoming a bigger threat, which has made Intel rethink how it runs its business.
The factory will start making chips with Intel’s advanced 18A process for big companies like Microsoft and Amazon next year, after becoming independent. Gelsinger says that this move is an important part of Intel’s larger change because it will help the company become more efficient, make more money, and fight better in the semiconductor business, which is changing very quickly.
“This is the most significant transformation Intel has undergone in over 40 years,” he said. “Not since memory to microprocessors have we begun something so critical.”
The stock market reacted positively, and Intel’s shares ended the day 6.4% higher. After hours trade, the price of the company went up from $19.86 to $23.30.
Intel is facing some problems
Even with this positive step, Intel still has to deal with problems on its way to recovery. Early tests of its 18A chipmaking process reportedly ran into problems, which makes people worry about its ability to keep up with rivals.
Intel started its manufacturing business in February. It’s called the Foundry, and its main job is to make chips that are designed for AI. Intel wants to depend less on chips made by other companies by making its own chips. But as part of its larger plan to restructure, the company also wants to sell some of its shares in Altera, a company it bought in 2015 that makes customizable chips.
Intel will also cut about two-thirds of its global real estate and streamline its foundry. The Biden government has also agreed to pay up to $3 billion for Intel to make chips for the U.S. military. The CHIPS Act is an important part of the government’s plan to boost chip production in the United States as political pressures rise, especially with Taiwan.
Intel’s chip business reported an operating loss of $7 billion earlier this year. This caused a sharp sell-off that cut the stock by over 30% in just two days, which was the biggest two-day drop in the company’s history. In order to save money, Intel wants to cut its staff by 15%, with the goal of having only 15,000 workers by the end of the year.
Intel is still behind competitors like Nvidia and AMD, but the company is still determined to change its place in the market. But Intel’s attempt to get into the Bitcoin mining chip business in 2022 didn’t last long; production stopped the next year.
Intel may take a while to get back on its feet after the downturn, but the company’s efforts to restructure show that it is determined to do so in a competitive and quickly changing industry.
