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In a nutshell: Rumors regarding Intel partially divesting its foundry division have circulated since an insider leak last month. The company addressed those rumors this week, confirming its fabrication operation would become an independently run subsidiary. Head honcho Pat Gelsinger calls it "the next phase" of his plan to "transform" Intel into the powerhouse it once was.
On Monday, Intel CEO Pat Gelsinger informed employees that the company is transforming its foundry arm into an independent subsidiary, confirming insider leaks from August. According to the press release, disguised as a message to employees, the decision emerged last week after what Gelsinger described as a "highly productive and supportive Board meeting."
As an independent subsidiary, the foundry can accept outside investments and allocate funds within a separate budget. This separation will allow the foundry to run more efficiently.
"Collectively, these changes are critical steps forward as we build a leaner, simpler and more efficient Intel," Gelsinger said. "And they build on the immediate progress we have made since announcing our plan on August 1 to create a more competitive cost structure."
The foundry will keep its current leadership and form an independent board of directors. A confidential source told CNBC that the company is considering turning it into a publicly traded spinoff. Gelsinger says the foundry will expand its relationship with Amazon Web Services (AWS) with co-investments in new chip designs, including an AI chip for AWS and a custom Xeon 6 chip based on Intel's 3nm process.
Intel's foundry has been particularly troubled recently. After spending two years and $50 billion expanding its fab operations, the company turned in a dreadful Q2 2024 earnings report. Gelsinger called it "disappointing," but investors promptly launched a class-action suit claiming that executives, including Gelsinger and CFO David Zinsner, issued "materially false and misleading" statements about its foundry business.
The news of the foundry split caused stock prices to rebound nearly 22 percent from a low of $18.60 per share just five days ago to $22.66 during trading on Monday. However, it's still a far cry from the $49.55 stock price investors enjoyed in January.
Gelsinger remains confident that he can turn things around. In addition to the continued broadening of its AWS relationship, the company received a $3 billion cash injection thanks to the CHIPS ad Science Act.
However, the company still plans to cut 15,000 jobs by year's end. Nobody knows if they are getting let go, but the boss said the company would notify "impacted employees" beginning in the middle of next month. It is also divesting two-thirds of its global real estate holdings by the end of the year.