Major Intel Orders and Restructuring Boost Stock Price

Intel shares rose in early trading on Tuesday after the chipmaker announced significant changes to its struggling business model and details of a lucrative new contract with Amazon. Intel, which has struggled to align some of its older business segments with its new focus on high-end chip manufacturing, has already lost billions in value this year, and its position in the Dow Jones Industrial Average has been questioned amid the ongoing downturn. The company aims to expand its operations across the full AI spectrum by producing chips that support both the next generation of laptops and processors for client-based servers. Under the leadership of CEO Pat Gelsinger, Intel is also building and expanding a contract chip manufacturing business tied to investments from President Joe Biden’s "Chips Act." This division could be spun off as a standalone subsidiary with an independent board following a meeting scheduled after the weaker-than-expected second-quarter results, Gelsinger said. Intel also gained value through a contract with Amazon Web Services to manufacture high-end chips and plans to pause the construction of a massive $32 billion manufacturing facility in Germany for at least two years. "This expansion of our longstanding relationship with AWS reflects the strength of our process technology and delivers differentiated solutions for customer workloads," Gelsinger said. Intel expects the partnership to unleash innovations in the joint ecosystem and support the growth of both companies as well as a sustainable domestic AI supply chain. The company also confirmed reports of a $3 billion contract from the "CHIPS and Science Act" to develop highly sensitive components for the Department of Defense and remains committed to plans to sell part of its Altera chip business. The cost savings from delaying construction in Germany, along with the funding from the Defense Department and Amazon contracts, could provide Intel more leeway to invest capital in its independent contract chip manufacturing business. CFRA's Chief Equity Analyst Angelo Zino even views the contract chip manufacturing unit as Intel’s "potentially only real growth area." Intel’s core business is being attacked by chipmakers like Nvidia, AMD, and Qualcomm in the PC and data center markets, while hyperscalers like Amazon are attempting to replace Intel’s processors with in-house designs. The second-quarter results reflected this view, as adjusted earnings for the three months ending in June came in at 2 cents per share, well below the Wall Street forecast of 10 cents, and revenues fell by 1.15% to $12.8 billion. For the current quarter, Intel forecasts revenues between $12.5 billion and $13.5 billion. Simultaneously, the company plans to reduce its global workforce by 15%—more than 15,000 jobs—and suspend the quarterly dividend. Intel shares have gained 6.8% in pre-market trading and are expected to trade at $22.34 per share, which means the stock is still down nearly 50% for the year.