Intel (NASDAQ:INTC), the renowned chip manufacturer, revealed on Tuesday its intention to establish its programmable chip unit as an independent entity, effective from January. The company also announced plans to conduct an initial public offering (IPO) for the stock of this new business within the next two to three years, sparking a more than 2% surge in Intel’s shares after the announcement.
Intel originally acquired the programmable chip business through its $16.7 billion purchase of Altera in 2015. These programmable chips serve as a bridge between Intel’s general-purpose chips and specialized chips designed for specific tasks, with applications ranging from data encryption to 5G wireless telecommunications equipment.
Sandra Rivera, a longstanding Intel veteran, will lead the newly established unit, which will continue to utilize Intel’s manufacturing facilities for chip production. Intel has initiated an extensive search process, both internally and externally, to find a replacement for Rivera, who currently oversees the company’s data center and artificial intelligence chip division, competing with industry giants like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
During a conference call with investors, Rivera highlighted that the unit is increasingly relying on Intel’s own factories for chip production, rather than the factories in Taiwan where they were previously manufactured. Programmable chips find applications in critical sectors such as defense, including use in fighter jets.
Rivera commented We observe significant customer enthusiasm for a more secure and robust supply chain in North America, particularly among industrial, aerospace, and defense sector clients. We are strategically establishing this to gain a distinct advantage by harnessing Intel’s capabilities.
This strategic move follows Intel’s earlier efforts to divest its memory chip unit to SK Hynix and take a segment of its Mobileye self-driving car chip unit public. These initiatives are part of Chief Executive Pat Gelsinger’s broader strategy to rejuvenate Intel by revitalizing its manufacturing capabilities, which had fallen behind rivals like Taiwan Semiconductor Manufacturing Co (2330.TW).
According to Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors, This move appears to be a well-timed, astute, and efficient step that could potentially enhance investor value and enable Intel to concentrate on its core strengths while securing funding for its turnaround efforts.
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