About the company

Intel, as one of the erstwhile global leaders in semiconductor chips, has been undergoing significant changes in recent years. After struggling with competitors such as AMD and later Apple with its own M1 chips, it has focused on strengthening its manufacturing capabilities and innovation. In 2021, it announced huge investments in new factories, including expansions in the US and Europe, to boost chip production and reduce reliance on Asian suppliers. Under new CEO Pat Gelsinger, Intel is looking to return to its position as a technology leader, betting on the development of new technologies and partnerships with other big players in the sector.

The creation of a new subsidiary

Intel has announced a long-awaited decision aimed at separating a loss-making business from one with growth potential. Its Intel Foundry Services (IFS) manufacturing division will now operate as a separate subsidiary. According to the CEO, the management of IFS will not change and will still be subject to the oversight of its parent company. However, it will also get its own board of directors with independent directors. The separation of IFS should increase efficiency and provide the possibility of its independent external funding, which could relieve Intel's core business of the costs that are one of the main reasons for its woes. According to an unnamed source at CNBC, Intel is even considering allowing IFS to become a separate publicly traded company. However, this report is unconfirmed. [1]

New projects, new manufacturing technology

In addition to the news of the creation of an IFS subsidiary, Intel's expanded collaboration with Amazon Web Services (AWS) has also been announced, which is expected to result in a multi-billion dollar joint investment in the development of its own specially customized chips, including a chip for an artificial intelligence data structure. Manufacturing would be done through Intel's new technology called 18A in Ohio, US. The collaboration, which also includes AWS's planned $7.8 billion investment in expanding data centres in the region, strengthens both companies' technology capabilities and supports the US manufacturing sector. Intel has also had a project with Broadcom through its new 18A technology, but a manufacturing experiment with its silicon wafers for chip production has so far been unsuccessful, and the future of the project remains uncertain.Intel is also working with Broadcom to develop a new 18A technology for the production of silicon wafers.[2][3]

Contracts and collaborations with the U.S. government

In another series of positive news for Intel, it has won a contract with the US military to produce microchips used in defence systems and other military equipment. The US$3 billion grant will come from the CHIPS and Science Act initiative, an effort by the Biden administration to bring chip manufacturing on US soil while ensuring stable supply chains that are resilient to geopolitical tensions. The military contract is not new for Intel, however, as it has worked with the US Department of Defense on advanced semiconductor development on several occasions in the past. At the same time, the company is also negotiating with the US Department of Commerce to secure funding for commercial production of its products.[4]

Promising news for investors

By the end of August, Intel had already hinted to the public its plans to split the business, which sparked a spark of hope among investors and briefly moved the stock price upward. Their price began to rise more consistently only from September 11, mainly due to a broader market rally encouraged by NVIDIA. However, Intel has already lost around 55% of its value since the beginning of the year, reaching back to 2010 levels. * After the company finally announced the spin-off of its IFS division, the stock gained more than 7% in pre-market trading on Tuesday, September 17, but ultimately closed the trading day with a gain of only 2.68%. Intel's latest strategic plans and projects with other companies are hopeful for investors to reverse the former tech giant's unfavorable financial situation. 

Intel's share price evolution over the last 5 years. (Source: Google Finance)*

Stagnant economic results

Intel's economic results provide a closer look into its ongoing problems. In the second quarter of 2024, it reported revenues of $12.8 billion, down approximately 1% year-over-year. At the same time, it ended in a loss of $1.6 billion, the second consecutive quarter of negative numbers. Alongside the results, the company announced a sweeping USD 10 billion cost-cutting plan, including a 15% reduction in headcount. Weaknesses also included lower performance in the data center segment, which declined 3%. Gross margin fell to 35.4%. Intel is also suspending dividend payments starting in the fourth quarter, in order to improve liquidity and invest in other technologies. On a more positive note, there was a 9% increase in revenue in the client PC division, as well as progress in the production of advanced chips based on the aforementioned new 18A technology. The company is forecasting third-quarter revenue in the range of $12.5 billion to $13.5 billion.[1]

Conclusion

Intel was at the very beginning of modern computing, particularly as a pioneer in semiconductor technology. Despite the challenges it has faced for several years, there is hope in the form of new initiatives and partnerships. In particular, the plan to separate IFS from its core business is an important strategic step aimed at improving the efficiency of its operations and regaining a strong market position. However, the competitive environment in the technology sector is extremely challenging, and at a time when the race is on in the development of artificial intelligence and many companies are already developing their own chips, Intel is lagging well behind major players such as NVIDIA or AMD.

Adam Austera, principal analyst at Ozios

* Past performance is no guarantee of future results

[1] https://www.intc.com/news-events/press-releases/detail/1704/intel-reports-second-quarter-2024-financial-results

[1] https://www.cnbc.com/2024/09/16/intel-turns-foundry-business-into-subsidiary-weighs-outside-funding.html

[2] https://www.intel.com/content/www/us/en/newsroom/news/intel-strategic-collaboration.html

[3] https://www.theverge.com/2024/9/4/24235682/intel-18a-chipmaking-process-broadcom-test

[4] https://www.investing.com/news/stock-market-news/intel-gets-up-to-3-billion-from-us-for-secure-enclave-3618218