Sept 17 (Askume) – Intel shares rose 7% in pre-market trading on Tuesday, as a chip manufacturing deal with Amazon’s cloud business provided a crucial support for its struggling contract manufacturing business.
Chipmaker INTC.O will make customized artificial intelligence chips for Amazon Web Services (AWS) as part of a billion-dollar deal. The move expands a years-long partnership between the two companies, which has seen Intel design a variety of chips for Amazon data centers.
Angelo Zino, senior equity analyst at CFRA Research, said, “The deal gives Intel some credibility as it seeks to attract new external customers.” In addition, it will help market Intel as a supplier of customized artificial intelligence chips.
Intel shares have fallen about 60% this year, lagging chip companies such as Nvidia Corp (NVDA.O) and TSMC as it missed out on an artificial intelligence-driven surge in chip demand.
The company is trying to regain manufacturing advantages lost from TSMC by building a foundry unit that has been at the heart of Chief Executive Pat Gelsinger’s turnaround strategy.
AWS (AMZN.O) is one of the first major customers with which Intel has announced a definitive agreement. The company said in February that Microsoft Corp (MSFT.O) would use its services to build customized computing chips.
But despite costly investments, the capital-intensive foundry unit isn’t expected to earn “meaningful” revenue until 2027 , which will drain cash flow and spark investor ire.
To ease the pressure, Intel said it would suspend plans for chip factories in Poland and Germany for about two years, raising questions about about 10 billion euros ($11.14 billion) in German subsidies for its two factories in the country.
“The move should help boost cash flow, even though the focus on US fabs is unlikely to be well received in the EU. But it will no doubt win praise in Washington and help Intel retain a key relationship,” said Mould, investment director at Russ AJ Bell.
(1 USD = 0.8978 EUR)
