Intel finally brings good news to Wall Street

After a disastrous second-quarter earnings report in August that resulted in the worst trading day for the company's stock in 40 years, Intel (INTC) CEO Pat Gelsinger finally has good news for Wall Street.

On Monday, Gelsinger announced that Intel had reached an agreement with Amazon Web Services that would allow the chipmaker to manufacture custom chips for the cloud computing giant.

The CEO also said that Intel will convert its foundry business into a subsidiary with independent directors. A foundry is a manufacturing facility for semiconductors. The move is intended to create a clear separation between Intel's design and manufacturing businesses, giving Intel's foundry customers the assurance that the design teams will not have access to their chips.

That's not all. Intel also confirmed that it has received $3 billion in funding from the CHIPS Act. In a press release, the company said the deal will “help secure the domestic chip supply chain and help [Department of Defense] to help improve the resilience of U.S. technology systems by promoting secure, cutting-edge solutions.”

However, the news is not all positive for Intel. The company is in the midst of a massive restructuring plan that includes laying off 15 percent of its workforce. On Monday, the company also announced that it is putting some of its plans to build new facilities in Europe on hold. And although Intel will complete its advanced packaging center in Malaysia, it plans to not bring the factory online until demand increases.

And then there's Wall Street. While shares of competitors like Nvidia continue to rise, Intel's stock has fallen an incredible 57 percent since the beginning of the year.

“I wouldn't say they're out of the woods yet,” Daniel Newman, CEO of Futurum Group, told Yahoo Finance. “But I would say additional funding sources, additional partner announcements and a cleaner structure for external partner investments are all the right steps.”

Intel's foundry business is experiencing an upswing

Intel is a rarity among semiconductor giants in that it both designs and assembles its own chips. Nvidia (NVDA), AMD (AMD) and Qualcomm (QCOM) all work with third-party manufacturers, most notably TSMC, the world's largest maker of advanced chips.

Intel is looking to capture market share for TSMC by making chips for both itself and third-party customers. Before the Amazon (AMZN) news, Microsoft (MSFT) was Intel's top manufacturing customer, but the addition of another big name helps further cement Intel's credibility as a chipmaker that can assemble semiconductors to customer specifications.

The story continues

“Intel says there will be operating policies and independent board members that will be completely transparent,” Patrick Moorhead, CEO and principal analyst at Moor Insights, told Yahoo Finance. “And I think if they get the right agreement, the right operating rules … then they have something here. I really believe that.”

Intel's foundry relocation will also provide the company with an opportunity to raise external capital for the business.

“The foundry business may now be better able to access external sources of financing; this will provide the struggling business with the opportunity to raise capital and, ideally, [Intel] focusing on manufacturing capacity without compromising core business performance and creating a balance between [long-term] Growth prospects and [short-term] “Profitability concerns,” Stifel analyst Ruben Roy wrote in a note to investors following Intel’s announcements.

But Intel's foundry business has reportedly suffered setbacks. According to Reuters, Broadcom, which evaluates Intel's manufacturing processes, was disappointed with test runs of chips built by Intel. But Amazon's now on board seems to show that Intel's manufacturing is working for certain customers.

Intel's work with the U.S. Department of Defense shows that the government views the company as a key supplier of some of its most important components. Semiconductor manufacturing facilities will play as big a geopolitical role in the next 50 years as oil refineries have in the last 50, Gelsinger said. And Intel is poised to play a major role for the U.S.

New chips will test Intel’s market strength

However, Intel's foundry business alone will not determine the company's future prospects. Its AI and data center segment must also improve after the company previously made mistakes in the high-performance chip space.

According to Moorhead, Intel's Gaudi AI processor failed to gain traction among hyperscalers like Amazon, Google and Microsoft because it came out after those companies had already started using or working on their own AI accelerators, giving them little reason to buy Intel's offerings.

Intel is launching a new GPU in 2025 that could compete with Nvidia and AMD's data center chips, but to gain market share, Intel needs to regain customer trust.

And then there's Intel's Client Computing Group, which is responsible for the processors used in desktop PCs and laptops around the world. The segment still generates the majority of the company's revenue, but faces stiff competition from rival AMD and Qualcomm's burgeoning PC chip business.

To counteract this, the company unveiled its Core Ultra 200V series of chips earlier this month. Intel says it offers the performance and battery life that customers demand and that the chips are on par with Apple's specialty processors, which have won fans thanks to their powerful and energy-efficient design.

Now Intel just needs to make sure the Core Ultra 200V series lives up to expectations when it launches in new laptops this fall. If that succeeds and Intel can continue to attract customers to its foundry segment, things could soon start looking up again.

“It's a good start,” Newman said. “I think anyone who tells you they've turned the corner is probably ill-informed. But I would say if you're looking for some kind of roadmap or signal, Ruben Roy's direction is palpable from below.”

Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.

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