After-hours rise by nearly 8%! Intel welcomes multiple positive news: subcontracting AI chips for Amazon, confirming eligibility for US government funding

According to a statement on Monday, Intel (INTC.US) is customizing AI chips for Amazon (AMZN.US), and the two parties have reached a multi-year cooperation framework on products and wafers. Intel and Amazon Web Services (AWS) will jointly invest in custom semiconductors for artificial intelligence computing, which will rely on Intel's 18A process, an advanced chip manufacturing technology.

Intel CEO Pat Gelsinger is working to make AWS a customer of the company's manufacturing business, which could bring job opportunities to the new factory being built in the United States and increase his efforts to turn around the struggling chipmaker. In 2021, Gelsinger began a bold comeback for Intel, but had to abandon some ambitions to improve efficiency. With shrinking sales and accumulating losses, Intel announced plans last month to lay off 15,000 people, saving $10 billion in costs and suspending dividends.

Now, Intel is adjusting its expansion plans and focusing on core markets. Intel has further cut back on overseas expansion plans. Intel has postponed new factories in Germany and Poland, but remains committed to expansion in Arizona, New Mexico, Oregon, and Ohio in the United States. Construction projects in Poland and Germany will be paused for about 2 years based on market demand. Intel stated that another factory in Malaysia will be completed, but will only be put into operation under supportive conditions.

At a three-day board meeting last week, executives discussed how to save cash while keeping Gelsinger's transformation plan on track. The CEO's efforts depend on transforming Intel into a so-called foundry, a chip manufacturer that produces products for external customers. The company has been slow to attract customers for this project, and a well-known customer like Amazon represents a significant victory.

Intel also aims to accelerate the $10 billion cost-saving plan and better focus its products in the field of artificial intelligence computing where competitor Nvidia (NVDA.US) excels. The company also plans to reduce its global real estate business by about two-thirds by the end of this year. The company also reiterated its plan to sell a portion of its stake in Altera Corp. to private equity investors. Intel acquired the business in 2015 and separated it from operations last year with the goal of going public.

AWS is the largest cloud computing provider, which can help Intel build confidence to compete with foundry leader TSMC (TSM.US). AWS has been using Intel processors for years but has been transitioning to internal designs, which are the products Intel may now help manufacture. Another major cloud computing provider, Microsoft (MSFT.US), announced in February that it plans to use Intel chips in some of its internal chips.

In addition, Intel will establish Intel Foundry Services (IFS) as an independent division. To attract more customers, Intel plans to separate the foundry business from its other businesses and make it a wholly-owned subsidiary. This move aims to show potential customers that IFS is an independent supplier, especially for companies that compete with Intel, so they can work with more confidence In another victory, Intel receives U.S. government support. Intel announced earlier on Monday that it is eligible to receive up to $3 billion in funding from the U.S. government to manufacture chips for the military. The program, known as "Secure Enclave," aims to establish a stable supply of cutting-edge chips for national defense and intelligence purposes. The Biden administration allocated funds to Intel through the "Chips and Science Act" to provide stable advanced chip supply for the U.S. Department of Defense and Intelligence.

Through this project, Intel is expected to secure more government contracts, including a potential $3.5 billion contract to manufacture semiconductor components for the Pentagon. The funding will support factories in four states in the U.S. These projects include a factory in New Albany, Ohio, which Intel has stated could become the world's largest chip manufacturing facility.

To regain full trust from Wall Street, Intel still has a long way to go. After years of losing to competitors and declining technological advantages, this Silicon Valley pioneer is valued at less than $90 billion. As a result, it is no longer one of the top ten chip companies. Meanwhile, Nvidia currently has a market value of around $2.9 trillion.

Intel's dismal financial report released last month shocked investors, leading to the largest single-day drop in decades. Analysts have called it Intel's worst financial report ever.

In a letter to employees, Gelsinger acknowledged that Intel's performance has attracted negative scrutiny and sparked speculation about what might happen to the company. He stated that the only way to "quell criticism" is to deliver results and improve execution. He mentioned that today's announcement is a step towards this goal.

Following a series of announcements, as of the time of writing, Intel's stock rose nearly 8% in after-hours trading on Monday