- Intel is reportedly spinning out its Networking and Edge division
- Networking business is not strategic for Intel, analysts told Fierce
- Major customers like Ericsson and Nokia sense could decide to invest in the standalone company
Is Intel playing it smart, or is its plan to spin out its Network and Edge (NEX) business just the latest in a series of desperate moves?
CRN broke news of the plan to spin off the business the same day Intel reported a $2.9 billion net loss on $12.9 billion in revenue in Q2. The beleaguered chip vendor also revealed plans to drop planned construction of manufacturing plants in Germany and Poland and cut another 15% of its workforce by year’s end, bringing its total 2025 headcount reduction to around 22%.
An Intel representative confirmed to Fierce the company plans to move "key elements of our Networking and Communications business" to a standalone company and has already "begun the process of identifying strategic investors."
The move makes sense for Intel given the NEX business “really isn’t all that strategic to its long-term goals,” J. Gold Associates Founder Jack Gold told Fierce.
NEX, he noted, has always been a relatively small business concentrated in the telecom sector, with Ericsson and Nokia among those that use Intel’s networking tech. But while it’s an important market, it’s still small compared to the massive AI opportunity Intel is now focused on chasing.
AvidThink Founder Roy Chua said Intel focusing on its core businesses is a great strategy, in theory. "It'll come down to whether the increased efficiencies are realized and they hit upcoming key milestones on the roadmap in both silicon and foundry," he told Fierce. "The market and analysts are still mixed on whether they will succeed."
Spin doctor
The spin-off play is a familiar one for Intel. Just last year, the vendor completed the separation of its field-programmable gate array (FPGA) division into a new company called Altera. It brought on Silver Lake as a strategic investor, handing the private equity firm a 51% stake. The Intel rep told Fierce that, as with Altera, "we will remain an anchor investor, enabling us to benefit from future upside as we position the business for future growth."
Gold said he doesn’t expect NEX to be bought outright by rivals like Cisco and the like, but instead be funded by a combination of Intel and investment companies. Chua had a similar take, noting that a competitor might "have too much product line overlap to want to overpay for the assets." Major customers, which Gold said will likely continue to use Intel’s networking chips, could also end up investing in the standalone business.
Why wouldn't a customer just buy it themselves? Someone like Ericsson "might not be prepared for a complicated transaction where they have to find yet another buyer for the pieces Ericsson doesn't care about," Chua noted. In contrast, private equity firms are much more familiar and comfortable with the restructuring, rationalization and licensing deals that will be part of the spin-off process and can more readily set NEX up for success, he said.
Moor Insights and Strategy's Will Townsend told Fierce the move could strengthen NEX's portfolio - including ethernet and DPU silicon - especially if it can find investors willing to back its long-term roadmap.
Chua similarly said the spin out could help NEX duke it out with competitors.
"If NEX gets an infusion of cash and is able to focus, it could better compete with Broadcom, Marvell, NVIDIA, and AMD," Chua said. "At this point, though, I have to expect that competitors are aggressively pushing existing Intel customers and partners in the networking and communications space to switch away from Intel."
What kind of revenue can we expect from the spin-out business? That’s hard to say.
Back in Q1, Intel integrated its Networking and Edge Business into its Client Computing Group (CCG) and Data Center and AI (DCAI). Thus, breakout figures for Q2 weren’t available. But for the full year 2024, NEX brought in $5.8 billion in revenue, compared to CCG’s $30.3 billion and DCAI’s $12.8 billion.