Intel signs AI chip deal with AWS, pauses plans in Poland and Germany

Intel has announced the acquisition of a key customer and changes to its foundry business, aiming to turn the ailing chipmaker around.

In a blog post, Intel CEO Patrick Gelsinger said the company would pause its chip manufacturing projects in Poland and Germany for two years “due to expected market demand” and was considering withdrawing its chip packaging and testing factory in Malaysia. Intel had previously pledged to invest over $36.72 billion to build semiconductor factories in Magdeburg, Germany, $4.6 billion in a chip factory near the Polish city of Wroclaw and $7 billion in its Malaysian facility.

In this context, Intel is taking steps to convert its chip foundry division, Intel Foundry, into an independent subsidiary, Gelsinger said. The leadership of Intel Foundry will not change and the subsidiary will remain part of Intel, but Intel Foundry will also get its own board of directors with independent directors.

In a win for the foundry company, Gelsinger announced that Intel has signed a deal with AWS to jointly develop an AI chip using Intel’s 18A chip manufacturing process. Intel has also agreed to manufacture 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 of Intel Foundry’s business, describing the AWS deal as a “multi-year, multi-billion dollar framework” that will potentially include additional chip designs. “This (…) demonstrates the continued progress we are making in building a world-class foundry business.”

Intel’s cost-cutting and contract wins — along with a newly awarded $3.5 billion contract to make chips for the Pentagon — sent the company’s shares up more than 6% at market close, a bright spot in Intel’s otherwise dismal 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 of the year, despite a slight increase in revenue year-over-year.

Intel is also said to have lost a key customer: Sony, after failing to reach an agreement to manufacture chips for Sony’s upcoming PlayStation 6 console. According to Reuters, a takeover of Sony would have added $30 billion to Intel’s foundry business.

This summer, Intel announced a $10 billion cost-cutting plan that includes laying off 15,000 employees through severance and early retirement. (Intel says the process is already more than halfway through and is expected to be completed by the end of the year.) The chipmaker is also reportedly considering selling its autonomous driving unit Mobileye and its enterprise networking division.