Intel gets boost from AWS, government contracts

Intel's turnaround efforts got a promising boost from a deal to manufacture two semiconductors for AWS and a $3 billion government contract to expand chip production for the U.S. military.

On Monday, Intel also reported that it would make its foundry business, the company's chip manufacturing side, an independent subsidiary, separating it further from Intel's chip-design operation. Intel believes other chipmakers might be more willing to sign deals with its foundry if there's a wider separation between the company's two businesses.

The AWS and government deals sent Intel stock higher, the first significant boost since the company revealed last month draconian measures to finance its most extensive overhaul in four decades. The cutbacks included reducing its workforce by 15%, or 15,000 jobs, and cutting $10 billion in capital expenditures.

Intel, once the top U.S. chipmaker, has fallen behind as the semiconductor market has shifted from data center chips powering traditional computing to GPUs running AI models and applications. Intel has lost substantial market share to Nvidia, the leading AI chipmaker, and AMD.

Under the AWS deal, Intel will manufacture an AI fabric chip for the cloud provider using the chipmaker's most advanced process, called 18A. Also, Intel will produce a custom Xeon 6 for AWS, an expansion of an existing partnership in which Intel makes data center processors that meet AWS specifications.

Analysts described Intel's AWS deal as promising because the cloud provider and its rivals, Microsoft Azure and Google Cloud, are among the largest consumers of chips used to run AI systems. Facebook parent Meta is another hyperscaler with an insatiable appetite for AI processors.

Intel's expanded partnership with AWS and its co-engineering work with Microsoft Azure to build custom Xeon chips to run some Azure services show Intel has achieved some stability in its foundry business, IDC analyst Mario Morales said.

"It shows that Intel is being more flexible and leveraging its intellectual property for customers that want access to it, including being able to build custom silicon," Morales said. "That's something Intel had been reluctant to do, especially with cloud service providers."

Unknowns in Intel recovery efforts

There are some unknowns in Intel's latest announcements. Intel did not say how much badly needed cash the AWS deal will generate. Intel only described it as a "multi-year, multi-billion-dollar framework covering product and wafers."

Also, the $3 billion the Biden administration awarded to Intel to build advanced chips for the Defense Department is a long-term project that will bring in cash over time, not immediately.

"The announcement at least quantifies the very long-term project," Morales said.

The latest funding comes from the federal $39 billion CHIPS Act for domestic semiconductor manufacturing. Earlier, the administration awarded Intel $8.5 billion to fund U.S. foundry construction projects.

Whether turning its manufacturing business into an independent subsidiary inside of Intel is enough to attract chipmakers like AMD, Broadcom, Marvell and Qualcomm remains to be seen. Intel is still heavily dependent on its foundries to develop chips it hopes will compete against AMD and Nvidia, including next year's Falcon Shores for high-performance computing.

The importance of upcoming products to Intel's survival makes it unlikely the company will give up complete control of its manufacturing arm, Morales said.

Despite Intel's challenges, the company's latest deals convinced Patrick Moorhead, chief analyst for Moor Insights and Strategy, that Intel is in a much stronger position. Its advanced 18A manufacturing process could generate more deals from cloud providers while producing more powerful, energy-efficient chips for Intel, he predicted.

"I believe we should see the first signs of recovery in the second half of 2025," Moorhead said. "I believe we will see [Intel] hit its stride in 2026."

In a letter to employees, Intel CEO Pat Gelsinger gave an update on the company's foundry plans. Intel will pause construction projects in Poland and Germany for about two years due to lower-than-expected market demand.

However, the company does not expect to alter plans for its U.S. manufacturing operations. Construction projects will continue in Arizona, New Mexico, Ohio and Oregon.

Also, Intel is more than halfway in meeting its workforce reduction of 15,000 jobs and is on pace to reduce or exit about two-thirds of its real estate globally by the end of the year, Gelsinger said.

Antone Gonsalves is an editor at large for TechTarget Editorial, reporting on industry trends critical to enterprise tech buyers. He has worked in tech journalism for 25 years and is based in San Francisco. Have a news tip? Please drop him an email.