Intel is spinning off its AI-focused foundry business into an independent subsidiary, which could turn things around for the firm. The firm has posted multibillion-dollar losses and seen its stock price fall nearly 45% in the last year.

Intel's Strategic Shift

In a Sept. 16 memo to employees, Intel CEO Patrick Gelsinger said Intel Foundry will become an independent subsidiary with its board of directors and the ability to raise outside capital.

Intel is among the world's largest producers of semiconductors and computer processing units. The move to spin off Intel Foundry marks an escalation in competition with its rival Nvidia, which has profited massively from creating chips and cards that cater to the specific needs of AI systems.

Intel says its foundry business will begin producing chips with its new 18A chipmaking process for its partners, including Microsoft and Amazon, beginning next year.

Gelsinger said the new spin-off plan would allow the struggling chipmaker to "drive greater efficiency, improve profitability, and enhance market competitiveness."

Market Reaction and Future Prospects

"As I've said before, this is the most significant transformation of Intel in over four decades. Since the memory to microprocessor transition, we have attempted something so essential," Gelsinger said. Intel shares closed the day up 6.4%, jumping from a price of $19.86 at market open to as high as $23.30 in after-hours trading, per TradingView data.

Intel still faces challenges. Despite Gelsinger's support for the firm's new 18A chipmaking process, a Sept. 4 report from Reuters suggested that early tests had suffered significant setbacks.

Launched in February, Foundry is Intel's manufacturing arm focused on building chips for artificial intelligence processes. The Intel Foundry produces its chips in-house instead of expediting or outsourcing production to third-party manufacturers.

Restructuring and Financial Strategies

Additionally, Intel noted that it plans to sell part of its stake in Altera, a programmable chip manufacturer it acquired in 2015.

Gelsinger added that Intel would cut around two-thirds of its global real estate footprint and revealed that the Biden administration had awarded the company up to $3 billion in funding to make chips for the US military. On Aug. 1, Intel reported operating losses of $7 billion for its chipmaking arm and came in well under investor targets in its quarterly earnings report.

This caused the stock to sell off by more than 30% in the following two days, the firm's sharpest two-day nosedive in history.

Workforce Reductions and Competitive Landscape

At the time, the company planned to lay off around 15% of its workforce as part of a broader cost-reduction effort.

Gelsinger said the company was "more than halfway" through the process, with an end target of 15,000 employees by the end of the year. The change comes as Intel lags behind rival chipmakers, including Nvidia and Advanced Micro Devices (AMD).

Broader Context and Market Trends

After just one year of production, Intel launched a series of Bitcoin-mining chips in 2022 but discontinued them in April.

The company is taking bold steps to revitalize its fortunes in a rapidly evolving industry. By spinning off its AI-focused foundry, Intel aims to become more agile and competitive in the marketplace.