(Reuters) – Intel’s (INTC) foundry, or contract manufacturing business, has signed on with Amazon’s (AMZN) cloud services unit as a customer to make custom artificial intelligence chips, the two companies said on Monday, a deal that gives the chip maker a vote of confidence.
Intel shares rose nearly 8% in extended trading on Tuesday after CEO Pat Gelsinger issued a memo to employees announcing that Intel had made the Amazon unit a multibillion-dollar customer that pays Santa Clara, California-based Intel for design services and manufacturing. Intel's planned cost cuts were also mentioned in the memo.
Amazon's AWS cloud computing division is already designing several chips for use in its data centers and has hired Intel to package at least one version. Intel will produce an “artificial intelligence fabric chip” for AWS and use the chip maker's 18A process, the most advanced version available to external customers, the companies said.
Intel said it expects to receive additional designs from Amazon on the company's upcoming 18AP and 14A manufacturing processes.
The memo also outlined a number of steps Intel would take to revive itself. Last month, it reported disappointing second-quarter earnings.
“The Board and I agreed that we still have work to do to achieve greater efficiencies, improve our profitability, and enhance our market competitiveness,” Gelsinger wrote in the memo.
Among the steps the board has decided to take is selling a stake in its programmable chip business Altera. It also said it would halt construction on its chip factory project in Germany for two years, a move that was previously reported by Reuters. The company also plans to halt its project in Poland.
Intel said there were no changes to its plans to expand manufacturing in the United States.
Intel plans to keep its manufacturing business, or foundry, within the company, a move confirmed by a previous Reuters report. The foundry business is crucial to Gelsinger's turnaround plan for the company, which he outlined in 2021. Until Amazon, Intel struggled to find marquee customers it could discuss publicly.
But in the memo, Gelsinger said the foundry business will gain more independence, for example by being able to take on outside capital. Intel plans to set it up as an independent subsidiary, with an operating board that will oversee foundry operations. The foundry unit separated its financial performance from the design business earlier this year.
The company is taking a number of steps to prioritize the core technology behind its central processing units (CPUs), and is restructuring several divisions, including its automotive and “edge” businesses.
On Monday, Intel also said it had received up to $3 billion in direct funding from the American CHIPS and Science Act as part of the Secure Enclave program.
The company said it plans to send notices in mid-October to about 15,000 workers it said in August it would lay off.
(Reporting by Max A. Cherny in San Francisco and Zubi Babu in Mexico City; Editing by Krishna Chandra Eluri and David Gregorio)