Story Stocks^®

Intel (INTC) and its much-maligned Foundry business may not be out of the woods just yet, but for the first time in a long time, there is reason to feel hopeful that the company can succeed in its quest to become a leading manufacturer of chips in the U.S. After securing a new $3.0 bln award with the U.S. government to produce advanced chips for the Department of Defense (DoD), INTC announced even better news after the close yesterday, disclosing a major win with Amazon (AMZN) Web Services in a deal that has the two companies working together to develop a new AI chip using INTC's 18A process.

The "multi-year, multi-billion-dollar framework" of the deal, as described by CEO Pat Gelsinger, has the potential to move the needle and to inject some confidence into the struggling Foundry unit, but there's more to the story. Over the past two weeks, speculation has been swirling around INTC's plans for its Foundry business and whether it may consider selling it off, but last night, CNBC reported that the company may turn Foundry into an independent unit.

• By transitioning the Foundry business into a separate subsidiary, that has its own operating board and directors, INTC would potentially be removing a significant roadblock to winning new customers. Since INTC is also a competitor to the chip companies that it's seeking to sign on as Foundry customers, there may be some hesitancy among those chip companies to help build INTC's Foundry business by becoming customers. However, if there's a separation between INTC's Foundry and Products businesses, then these chip companies may feel more comfortable with the idea of farming out their manufacturing to INTC.
• Ultimately, INTC may still decide to spin-off Foundry into an IPO, which should help to create shareholder value as both businesses would be free to implement their own distinct operating plans and growth strategies. Furthermore, INTC would be able to participate in Foundry's growth by retaining an ownership stake after the IPO.
• With the new DoD and AMZN contracts in hand, Foundry's backlog does continue to grow -- albeit, not as quickly as many stakeholders would like. Back in April, INTC disclosed that it signed a meaningful customer for 18A, bringing its total to six, and expanding its expected lifetime deal value with external customers to more than $15 bln. As was the case back then, INTC's goal remains becoming the world's second largest foundry by 2030.
• Lastly, Bloomberg reported last night that INTC is pausing plans to construct new fab facilities in Poland and Germany for two years, while Mr. Gelsinger also issued a message to employees, stating that about half of the workforce reduction initiatives have been completed. Recall that when INTC reported Q2 results on August 1, it also announced a $10.0 bln cost reduction plan that included the elimination of about 15,000 jobs.

The main takeaway is that while INTC hasn't yet resolved the competitive issues that have set it far behind rivals like Advanced Micro Devices (AMD) and NVIDIA (NVDA), the developments over the past few days do represent meaningful steps forward for the Foundry business.