Intel spins off its chip foundry into independent unit

Intel is taking a scalpel to its biggest money pit.

Following a brutal year that saw its stock shed nearly 45%, Intel announced on Monday that it is officially separating its AI-focused chipmaking arm, Intel Foundry, into an independent subsidiary. The new entity will have its own board of directors and the authority to raise outside capital.

Investors cheered the restructuring, pushing Intel shares up 6.4% on the day, with after-hours trading climbing as high as $23.30.

The deep cuts and outside cash

In a Sept. 16 memo to employees, CEO Patrick Gelsinger called the shift the most significant transformation Intel has attempted in over four decades, comparing it to the historic pivot from memory to microprocessors.

The spin-off comes after a disastrous August earnings report, where Intel revealed a $7 billion operating loss for its manufacturing arm. That triggered a two-day stock crash of more than 30%, the sharpest drop in company history.

To clean up its balance sheet, Intel is aggressively cutting costs. Gelsinger noted that the company is more than halfway through its goal to cut 15,000 jobs by the end of the year. Intel also plans to slash about two-thirds of its global real estate footprint and sell off part of its stake in Altera, the programmable chipmaker it acquired back in 2015.

On the funding side, Intel revealed that it landed up to $3 billion in direct awards from the Biden administration to produce secure microchips for the U.S. military.

The 18A gamble

Intel’s roadmap now hinges heavily on its upcoming 18A process node. The company says it will begin producing 18A chips next year for marquee partners, including Microsoft and Amazon.

But the manufacturing execution is far from guaranteed. While Gelsinger has staked the company’s comeback on the node, a Sept. 4 report from Reuters pointed out that early tests for the 18A process suffered major setbacks.

Intel is no stranger to ambitious hardware pivots that fizzle out. In 2022, the company launched a dedicated line of Bitcoin-mining chips, only to pull the plug in April after just one year of production.

Why it matters

For enterprise customers and developers, a revitalized Intel foundry could eventually bring more options and pricing competition to AI cloud compute. If Microsoft and Amazon successfully deploy 18A-based silicon in their data centers, cloud infrastructure costs might see downward pressure, but none of that hits production before next year.

For the semiconductor industry, this is an existential move to challenge TSMC and court companies currently beholden to Nvidia’s supply chain. In our view, spinning out the foundry into an independent subsidiary with its own board is a smart, necessary step. It builds a financial firewall around a business that just burned $7 billion, allowing external investors to fund high-cost cleanrooms without dragging down Intel's core balance sheet.

However, the real test won't be corporate structure—it will be yield rates. With Reuters already reporting setbacks on early 18A tests, Intel has virtually zero margin for error if it wants to keep hyperscalers like Microsoft and Amazon from walking away.