Track Hyper | Intel's good news keeps coming: stock price soaring

Author: Zhou Yuan / Wall Street News

Intel (INTC.US) stock price has risen significantly for two consecutive days.

Before the US stock market opened on September 16, Intel's stock price surged by more than 7%, closing with a 6.36% increase to $20.91; on September 17 before the market opened, Intel's stock price skyrocketed again, rising by over 6.5% to $22.30 (as of 16:20 on September 17).

The rebound in Intel's stock price was boosted by two pieces of news: first, on September 16, there were reports that Intel's contract manufacturing business had signed with the AWS (Amazon Web Services) department to manufacture custom artificial intelligence chips for AWS, with the cooperation announced on September 16; second, Intel CEO Pat Gelsinger outlined cost-cutting measures in a memo to employees.

These measures mainly include Intel pausing factory projects in Germany and Poland for two years; at the same time, the manufacturing project in Malaysia will also be paused, but Gelsinger did not specify the duration of the pause; in addition, Intel will reduce the number of its global office locations. Beyond these measures, a more significant move is Intel's plan to sell a portion of its stake in Altera, its programmable chip business.

As part of Intel's cost-cutting measures, splitting Intel's IFS (Intel Foundry Services) division into an independent subsidiary overseen by an operating board to supervise foundry operations is a core component. However, this newly independent subsidiary will still remain within Intel.

On August 30, Wall Street News learned from the supply chain that Intel was considering divesting the IFS business division. On September 16, further detailed information was disclosed regarding this news.

In the second-quarter financial report for this year, Intel listed the IFS business separately, disclosing its financial performance alongside the design business.

The IFS business is an important part of Gelsinger's IDM 2.0 strategy proposed after he became Intel CEO in February 2021. In February 2024, IFS officially upgraded to IF (Intel Foundry).

As a result, Intel will be divided into two main business segments: Intel Product responsible for product design, and Intel Foundry responsible for foundry manufacturing.

IF will integrate technology development, manufacturing, supply chain, and the original Intel foundry services, providing chip manufacturing services equally to both internal and external customers.

IF's goal is to become the world's second-largest foundry after TSMC by 2030.

However, in 2024, Intel's plan encountered a major setback. Due to the massive investment in the IFS business's foundry, which dragged down the second-quarter financial performance (Intel's worst quarterly financial report in its 56-year history), the total losses of IFS amounted to approximately $17.5 billion from January 2022 to June 2024 As of the end of June this year, Intel's cash reserves amounted to only $11.29 billion, while its current liabilities reached as high as $32 billion.

Kissinger stated at a Deutsche Bank conference on August 29th, "Venturing into contract manufacturing (i.e. Intel Foundry: IF) is more challenging than expected. I underestimated the heavy workload beyond producing high-quality (silicon) wafers. Establishing a foundry business requires increased design assistance and services expected by other potential customers."

Therefore, if IF cannot find major customers, lacks financing value, or fails to obtain external funding support, there is a risk of IDM2.0 being stillborn.

Now, in addition to Intel's self-rescue measures and securing the crucial IF core customer Amazon, Intel has also successfully persuaded the U.S. government to provide additional financial support.

On September 16th, Intel announced that under the "Secure Enclave" program of the CHIPS and Science Act, the company will receive up to $3 billion in direct funding support from the U.S. government, as well as a loan limit of $11 billion.

U.S. Commerce Secretary Gina Raimondo even personally promoted Intel's IFS business.

According to market sources, Raimondo held a closed-door meeting with investors of several U.S. semiconductor listed companies, including shareholders of NVIDIA and Apple, strongly recommending them to use Intel's foundry services to manufacture AI chips.

It is worth noting that Intel is striving to secure a custom contract for Sony PlayStation 6 chips. According to internal Intel forecasts, Sony's gaming console business could bring Intel approximately $30 billion in revenue during the contract period. In this business, Intel's competitor is AMD. Winning the Sony gaming console business will have a significance surpassing the true value Intel gains from securing AWS's AI chip foundry business