Intel, a well-known processor manufacturer, announced a major collaboration with Amazon, specifically its cloud division Amazon Web Services (AWS). This agreement, which includes the production of custom chips for artificial intelligence, brings Intel not only a financial boost but also an important step forward in its strategy to revive and strengthen its market position.

Intel $INTC+3.3% has entered into an agreement with Amazon $AMZN+0.9% to manufacture custom AI chips, marking a huge achievement for its manufacturing division. According to an internal memo sent out by CEO Pat Gelsinger to employees, Amazon has committed to being a multi-billion dollar customer of Intel. Intel's shares rose nearly 7% in premarket trading after the announcement. The collaboration includes not only manufacturing but also design services provided by Intel's headquarters in Santa Clara, California.

Amazon, which already develops its own chips for its data servers, has commissioned Intel to manufacture one of those chips, namely the so-called "AI fabric chip". This will be manufactured using Intel's most advanced manufacturing technology, 18A. This is the latest and most advanced process that Intel offers to its external customers. This deal is a key step for Intel as it has so far had difficulty in getting prominent customers for its manufacturing services.

Intel's strategy

Intel

INTC

$21.84 $0.70 +3.31%

Capital Structure

Market Cap

93.4B

Enterpr. Val.

137.2B

Valuation

P/E

91.0

P/S

1.7

Open $20.89

Day range $20.35 - $23.12

52 week range $18.51 - $51.28

In his memo, CEO Pat Gelsinger also outlined other steps to help the company recover from weak results in the second quarter of this year. Gelsinger highlighted the need to increase efficiency, improve profitability and strengthen competitiveness in the marketplace.

One of the key measures is the reorganization of the manufacturing division, or foundry, which Intel plans to spin off as an independent subsidiary. The move is intended to allow for greater flexibility and the possible raising of external capital. In addition, the manufacturing division has been financially separated from the design division since the beginning of the year.

Intel also plans to focus on improving its core processor (CPU) technology and reorganising other divisions, including those focused on automotive and "edge" technologies. In addition, it announced the sale of a stake in its Altera programmable chip division and the suspension of construction of chip factories in Germany and Poland.

US support and redundancies

Along with these changes, Intel received financial support of up to $3 billion from the US CHIPS and Science Act, specifically under the Secure Enclave initiative, which promotes secure chip manufacturing in the US. In addition, the US factories remain a key part of Intel's manufacturing strategy and their expansion continues as planned.

On the other hand, Intel also announced that it will start laying off approximately 15,000 employees in mid-October, which was announced in August. The move is part of a broader plan to cut costs and restructure the company.

Conclusion

The Amazon deal represents a significant milestone for Intel as part of its plan to rebuild its market position and strengthen its manufacturing division. The company's current actions indicate that Intel is determined to return to the top of the technology industry, even if the path to doing so involves difficult and sometimes unpopular decisions such as restructuring and layoffs.

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