Intel lands new contract with US government
Intel has announced multibillion-dollar contracts to make chips for Amazon and the United States government, sending the beleaguered stock up more than 8 per cent in after-hours trading.
The American chipmaker has been awarded up to $3 billion from the US government to help manufacture advanced chips for the military. The funding comes on top of the $8.5 billion grant and up to $11 billion in loans previously pledged by the government to bolster the manufacturing of chips in America.
Separately, Intel announced a multibillion-dollar deal with Amazon to design custom chips.
Intel, founded in Mountain View, California, in 1968, has been a beneficiary of the Biden administration’s Chips and Science Act, passed two years ago to provide tax benefits, loan guarantees and grants to encourage US companies to build chip manufacturing plants in the US.
However, the value of Intel’s shares has more than halved this year amid investors’ concerns that it has fallen behind in the AI chip race. The company has suffered from weaker demand for its traditional data-centre chips and increased competition in the personal computer market.
Last month Intel said it planned to cut 15,000 jobs and announced a drastic cost reduction plan as it warned that its revenue for the current quarter would be lower than expected. It also said that it would suspend its dividend.
In a memo to employees outlining Intel’s turnaround plans, Pat Gelsinger, the chief executive, said Intel would produce an “artificial intelligence fabric chip” for Amazon and use the company’s 18A process node, the most advanced version available for outside customers.
Intel is planning to sell a stake in Altera, its programmable chip business. The memo also said it would pause construction at its projects in Germany and Poland for two years.
The company plans to keep its manufacturing business inside the company.
Gelsinger, 63, plans to establish the foundry business as an independent subsidiary that would be able to take outside capital. The foundry unit separated its financial performance from the design business earlier this year.
His leadership has been questioned by some analysts amid the sharp decline in Intel’s shares. However, the chief executive said Intel’s board meeting last week had been “highly productive and supportive”. He said: “The board and I agreed that we have a lot of work ahead to drive greater efficiency, improve our profitability and enhance our market competitiveness.”
The shares closed up 6.4 per cent at $20.91 on Monday and added a further 8.1 per cent to $22.60 during extended trading in New York.
