Intel, a Silicon Valley giant that has struggled after a series of stumbles, said on Monday that it had signed new contracts and made further belt-tightening plans as it tries to cope with a deep slump in its business.
The company, which had embarked on a plan to expand its production capacity in the United States and abroad, said that Amazon would use its nascent chip production service, or foundry, to build at least two chips for its Amazon Web Services unit. It also said that it had secured an investment of up to $3 billion from the Biden administration to expand its manufacturing of advanced semiconductors for the U.S. military.
In a separate announcement, Intel said it would pause construction of new plants in Germany and Poland by about two years to wait for improved chip demand. But the company reaffirmed plans for investments in the United States, including a closely watched expansion in Ohio, its first major new production site in four decades.
Intel has faced calls from some investors to spin off its manufacturing business. While stopping short of that, Pat Gelsinger, Intel’s chief executive, said the company planned to establish the foundry business as an independent subsidiary inside of Intel.
Intel’s shares jumped 6 percent on news of the government award and more than 8 percent following the Amazon news.
The changes, which follow a board meeting last week, are “critical steps forward” to make Intel leaner and more efficient, Mr. Gelsinger said. He emphasized that it would be the “most significant transformation of Intel in over four decades.”
“All eyes will remain on us,” he said in a memo to employees. “We need to fight for every inch and execute better than ever before. Because that’s the only way to quiet our critics and deliver the results we know we’re capable of achieving.”
Daniel Newman, an analyst at the Futurum Group, said the move to establish a foundry subsidiary could help reassure other chipmakers that Intel wouldn’t unduly favor its own chip design unit, while also smoothing the way for a complete spinoff of that business should it become necessary. And the Amazon business could be significant.
“It’s a real nongovernment customer,” said Patrick Moorhead, an analyst at Moor Insights and Strategy. “It’s strategic.”
Concerns about Intel have ramped up in recent weeks. In August, the chipmaker announced that it would slash more than 15,000 jobs, or about 15 percent of its work force, among other restructuring moves and a reduction in capital spending.
Intel has been engaged in a multiyear effort to reorient its business model and catch up with foreign chipmakers who have surged ahead in their technological capacity. The company is widely considered the U.S. standard-bearer for production of advanced semiconductors, but sales and profit margins have fallen recently with stiff competition, technical stumbles and weak demand for some kinds of computers.
Until recently, Intel typically manufactured just chips that it designs and sells. But it has been working to transition to becoming a foundry business that would make chips for other customers. The “multibillion-dollar” collaboration with Amazon, as Intel described it, is the most significant to date in Intel’s effort to produce chips designed for other companies.
Mr. Gelsinger said in the memo that the company expected to have “deep engagement” with the Amazon unit on producing additional chip designs.
Intel’s announcement of a $3 billion grant to create a trusted source of computer chips for the U.S. government was also welcome news. The program, Secure Enclave, will be funded from the 2022 bipartisan CHIPS Act, which lawmakers passed to reduce the nation’s dependence on foreign sources of semiconductors.
Much of the world’s semiconductors are currently made in Asia, particularly Taiwan. China claims the island as its own territory, a position that Taiwan rejects, and American officials have long had concerns about the consequences for the U.S. economy and military if China were to invade Taiwan.
Intel officials said on Monday that the company would help “secure the domestic chip supply chain” and work with federal officials to “enhance the resilience of U.S. technological systems.”
The grant announcement comes about six months after the Biden administration awarded Intel up to $8.5 billion to help the company fund major construction projects in Arizona, Ohio, New Mexico and Oregon. That money, along with the award announced Monday, stems from a $39 billion pot of CHIPS Act funding intended to encourage companies to build and expand semiconductor plants across the United States.
Federal officials also awarded Intel up to $11 billion in loans, and the company is expected to claim federal tax credits that could cover 25 percent of its U.S. expansion projects, which are projected to cost more than $100 billion over five years.
Commerce Secretary Gina Raimondo, whose department is overseeing the distribution of the grants, said the $8.5 billion award would help bolster America’s production of the most advanced semiconductors. She also said Intel’s award would be the single largest grant made to a manufacturer under the new program. Commerce Department officials have announced more than $30 billion in subsidies so far.
The Secure Enclave program has been the subject of some controversy as it relies on a pool of funding in the CHIPS Act that was originally earmarked for other research and development programs. Some lawmakers and other companies in the semiconductor industry have questioned the decision to divert that money from other projects to Intel.
The $3 billion award will be executed by the Defense Department, though the money will come from the Commerce Department’s funding.
Intel has partnered with the Defense Department on several other programs, including providing custom circuits for military systems, and working with military contractors like Boeing and Northrop Grumman.
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