Intel's stock rallies after plan to spin off programmable solutions business in IPO over next few years

By Wallace Witkowski

Intel shares rise to pace the Dow's gainers

Intel Corp. shares rose Wednesday, after the chip maker announced plans to spin off one of its units as a public offering over the next two to three years.

Intel said late Tuesday it intends to operate its programmable solutions group (PSG) as a standalone business beginning Jan. 1, and report it as a separate unit in the company's first-quarter 2024 earnings report, as a transition to spinning off the unit as a public company.

Shares of Intel (INTC) rallied 1.9% in premarket trading, which made them the best-performing Dow Jones Industrial Average DJIA component ahead of the open. Dow futures (YM00) rose 50 points, or 0.2%, before the opening bell.

Sandra Rivera, who currently runs Intel's data-center and AI group, will lead PSG as chief executive, Intel said. Rivera will continue to run Intel's data-center group until a successor is named. The move follows last year's $35 billion acquisition of field-programmable gate array, or FPGA, chip maker Xilinx by Advanced Micro Devices Inc. (AMD), which is currently seen as the second-best-positioned chip maker for AI behind Nvidia Corp. (NVDA).

"Our intention to establish PSG as a standalone business and pursue an IPO is another example of how we are consistently unlocking more value for our stakeholders," Pat Gelsinger, Intel's chief executive, said in a statement.

"This will give PSG the independence it needs to keep growing share in the [field programmable gate arrays] market, differentiating itself with capacity and supply resilience from [Intel Foundry Services], and allowing Intel product teams to focus on our core business and long-term strategy," Gelsinger said.

FPGAs are considered important for growing data centers in that they can be configured by a customer or a designer after they are made. Those chips are used as accelerators in data centers to boost computing power and improve power efficiency in existing physical spaces.

Even before AMD's acquisition of Xilinx closed in mid-February 2022, analysts were already baking Xilinx's FPGA holdings into AMD's data-center sales forecasts.

"This speaks to how Intel is going all in on a scalable processor manufacturing model that can be sold to everyone," Lopez Research analyst Maribel Lopez told MarketWatch. "Gelsinger is going deep on focus and execution at scale."

Last year, Intel spun off Mobileye Global Inc. (MBLY) as a standalone company. Mobileye shares have risen 89% since beginning trade Oct. 26, 2022, on the Nasdaq, following a pricing of $21 a share.

As with Mobileye, Gelsinger told analysts on the call that Intel will remain a majority shareholder of the company resulting from PSG.

The last time Intel reported PSG as its own unit was the year ending 2022, when PSG revenue rose 4% to $1.9 billion, or less than 3% of Intel's 2022 revenue. In 2023, Intel shifted to a new way of reporting its businesses.

Regarding AI and data center, Rivera said PSG was "in the early days" of leveraging relationships with cloud-service providers in order to "ride the wave to increase that opportunity."

Cloud-service providers operated by Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT) and Alphabet Inc.'s (GOOG) (GOOGL) Google are driving high demand for graphics processing units and other chip hardware to handle the massive amounts of computing power needed to run generative AI models.

-Wallace Witkowski

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10-04-23 0731ET

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