Intel Strikes Back
After a seemingly endless barrage of hits against the company, Intel has finally swung back, with a series of announcements, surely timed to be lined up to announce them all today. Three different headlines tell the tale.
Per The New York Times, the big news the US government awarding $3B to Intel to power their "Secure Enclave" (not to be confused with the element of Apple silicon chips, which bear the same name). This money is on top of the (up to) $8.5B grant the government had already earmarked for Intel in order to build out production facilities in the US, and it seems to be about confirming their commitment to Intel despite all the financial troubles the company is currently facing. The reality is that the US doesn't really have another option here when it comes to fully American chip makers. So... yeah. Still, this almost reads like the US stepping in to say they're backstopping the banks during the financial crisis.
If you prefer CNBC, the big story is that Intel is further moving to make their foundry business a separate entity (from their chip design business). The big element of this is that the company is open to both outside investment in this business and setting it up to have its own "operating board", to be able to move more independently from 'Big Intel'. Many see this as a precursor to fully spinning the business off, thus removing a huge money pit from Intel's balance sheet. But they're clearly taking baby-steps here, seeing if the previously-rumored slow-rolling of new facilities in Europe (the American ones are full-steam ahead, it seems, per above) and the selling off of part of its stake in Altera is enough to placate Wall Street, longer-term.
Or maybe you like Bloomberg, there the headline is wrapped around the new, deeper Amazon partnership, specifically for AI-focused chips. This still feels a bit vague and big picture (as opposed to specific deal details we get a "multi-year, multibillion-dollar framework"), but it's a big show of support for Pat Gelsinger's strategy, as this is the big name customer Wall Street wanted to see tied to the 18A process which he has been effectively betting the company on.
Of these, my read is that the first is the most immediately impactful, the second is the biggest deal from a long-term perspective, the third is the real wild-card. Just a few days ago, I was thinking out loud that Amazon needed a "white knight" to ride in to help stabilize the company just as Microsoft had done with Apple back in the day. I made the case that it might be Microsoft, again:
Indeed. So I'm trying to think outside the box a bit here; what if there's a path forward by looking a bit backwards? Just as Microsoft was Apple's white knight back in the day, what if they step up to be Intel's here? Not buying the company – that would never be allowed, nor would Microsoft want that overheadache, I imagine – but as with Apple back in the day, what about a large cash infusion with some deeper partnership promises?
To be clear, this would need to be far larger than it was with Apple, but Microsoft also has a lot more cash and is far more cash-generative than it was back then. In our era of acquisition dead-ends, all of Big Tech is looking for interesting ways to put money to work – none so more than Microsoft. And there are compelling elements here, I think. In AI, everyone is now trying to break being beholden to NVIDIA. And Microsoft is one of those key, massive customers, thanks not only to their work, but the work of their key strategic partner, OpenAI.
Even Microsoft can't get enough access to NVIDIA's chips on its own and needs to barter with would-be rivals for more chips. They can't be happy about this – no large company can. And they have to be working to hedge this problem – all large companies must. Intel, while basically nowhere in AI, can still help with some blueprints Microsoft can perhaps provide. This wouldn't yield results anytime soon, but if the best time to do something was yesterday, the second best time is today. And the two sides already have some sort of partnership for Microsoft-designed chips. So this may well be that – but I'm talking scale here, not little tests.
Well, just take everything I said and sub in Amazon for Microsoft. Same basic ideas. Same needs – though arguably Amazon needs even more interesting ways to differentiate in AI. Same, but different, in some ways better, scale. And same deep pockets. And the reality is that Microsoft, in part thanks to OpenAI, may just be too wedded to NVIDIA right now. Amazon has more abilities to think outside the box, as it were (though we'll see how everything ultimately plays out with Anthropic). So I like it, I think.
All of the above would seem to buy Intel more time, which is what matters most to Gelsinger and the company right now. Now they just have to execute. That's all.
M.G. Siegler