Intel's partnership with Amazon drives stock rebound

On Tuesday (September 17), Intel shares rose nearly 4%, a rare rebound since the stock plunged 60% this year. The stock price rise was mainly stimulated by Intel and Amazon signed a number of chip manufacturing agreement.

Intel and Amazon signed a multibillion-dollar, long-term deal to make proprietary AI chips for Amazon Amazon Web Services (AWS) and further cement the years-long relationship between the two companies.

According to Angelo Zino, senior equity analyst at CFRA Research, the deal allows Intel to build credibility in the foundry business, helping it attract more external customers and strengthen Intel's competitiveness in the AI space.

Chip foundry transition difficult

However, despite some positive effects from the deal, analysts warn that it will not be enough to completely reverse Intel's woes. Intel CEO Pat Gelsinger's strategy of chip foundry transformation, although it will help long-term growth, but as of now, Intel's foundry business is still losing a lot of money.

Amazon has become one of Intel's few large customers, but if it wants to really gain a foothold in the market, Intel must be able to attract customers with greater demand and more powerful AI technology, such as Nvidia and UltraMicro Computer, which are now longtime TSMC customers.

Postponement of European factory construction plans

In addition to this partnership with Amazon, Intel has also announced that it will delay the construction of its chip factories in Poland and Germany, which is expected to be put on hold for two years.

This decision could put at risk its access to about €10 billion in subsidies from the German government. While the move may improve Intel's cash flow and allow it to focus more on the U.S. market, for the European Union, the decision could spark discontent.

According to Russ Mould, investment director at AJ Bell, the strategy of focusing on U.S. chip plants may gain more support in Washington and help Intel maintain a close relationship with the U.S. government. However, in the long run, it remains to be seen whether Intel can remain competitive in the global market, and the reaction of the European market in particular will be one of the challenges ahead.

Establishment of an independent subsidiary for foundry business

In order to further consolidate the foundry business, Intel announced on Monday (September 16) will set up a wholly owned subsidiary, specializing in chip foundry business, and the establishment of an independent board of directors.

Moor Insights&Strategy's chief analyst Pat Moorhead said that this independent strategy may dissolve the doubts of some potential customers, such as Apple, Qualcomm or Broadcom and other companies to outsource manufacturing concerns.

In addition, if the cooperation between Intel and Amazon goes well, Amazon may give more AI-related chip foundry business to Intel in the future, such as its Graviton processor and AI training chip Trainium, further expanding the scope of cooperation between the two sides.

Streamlining business, focusing on core areas of development

In addition to the foundry business, Intel also announced that it would streamline its global business, planning to reduce the number of offices around the world by about two-thirds by the end of this year, and cut its product lines to focus on x86 architecture and AI.

This measure is another important strategy for Intel to reduce costs and improve competitiveness. However, experts believe that the pace of Intel's transformation is too slow, especially in the context of the rapid development of AI technology, Intel needs to accelerate its pace and show its relevance in the AI market.

Over the past few weeks, rumors have also swirled about Intel's possible spin-off or sale of its foundry business, showing that the market's confidence in Intel's future remains low.