Intel Partners With Amazon to Manufacture Custom AI Chips

In a significant development for the tech industry, Intel's foundry business has officially partnered with Amazon's cloud services unit to manufacture custom artificial intelligence chips. This collaboration, announced on Monday, marks a pivotal moment for Intel, which has been striving to regain its footing in the competitive semiconductor market. The deal not only showcases Intel's capabilities but also provides a much-needed boost to its stock, with shares rising approximately 8 percent in after-hours trading.

Intel's CEO, Pat Gelsinger, shared the news in a memo to employees, revealing that Amazon's cloud division, known as AWS, will become a multibillion-dollar customer. This partnership involves Intel providing design services and manufacturing for Amazon's AI chips. The collaboration is particularly noteworthy as AWS already designs several chips for its data centers, and Intel will be responsible for packaging at least one version of these chips.

As part of this agreement, Intel will produce an "artificial intelligence fabric chip" using its advanced 18A manufacturing process, which is currently the most sophisticated option available to external clients. Furthermore, Intel anticipates additional designs from Amazon utilizing its upcoming 18AP and 14A processes. This partnership is a crucial step for Intel, especially after reporting disappointing earnings in the second quarter.

In his memo, Gelsinger acknowledged the challenges ahead, stating, "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." To address these challenges, Intel is implementing several strategic measures, including selling a stake in its programmable chip business, Altera, and pausing construction on its chip factory project in Germany for two years. Reports also indicate that the company will halt its project in Poland, although plans to expand manufacturing in the United States remain unchanged.

Intel's foundry business is a critical component of Gelsinger's turnaround strategy, which he first outlined in 2021. Until now, Intel has faced difficulties in attracting high-profile customers, making this partnership with Amazon particularly significant. Gelsinger emphasized that the foundry business would operate with greater independence, including the ability to seek outside capital. Plans are in place to establish the foundry as an independent subsidiary, complete with its own operating board to oversee operations.

Additionally, Intel is taking steps to prioritize the core technology behind its central processing units (CPUs) and is reorganizing various divisions, including its automotive and edge businesses. In a further boost, Intel announced it has been awarded up to $3 billion in direct funding from the U.S. CHIPS and Science Act as part of the Secure Enclave program.

As Intel navigates these changes, it is also preparing to lay off approximately 15,000 employees, a decision communicated in August. This restructuring reflects the company's commitment to adapt and thrive in a rapidly evolving industry.

The partnership between Intel and Amazon represents a significant step forward for both companies. For Intel, it is a chance to regain its status as a leader in the semiconductor industry, while for Amazon, it enhances its capabilities in artificial intelligence. As the tech landscape continues to evolve, this collaboration could pave the way for innovative advancements that benefit consumers and businesses alike.