Intel Corp (INTC) just pulled off a strategic U-turn that says a lot about where the company thinks its future lies. After spending months exploring options to spin off or sell a stake in its networking division, Intel announced Wednesday it's keeping the business under its roof. The reason? Management believes the unit will thrive more as part of Intel's broader AI and data center push than as a standalone operation.

The chipmaker reviewed multiple paths for its Network and Edge Group (NEX), including making it an independent business. But after weighing the options, Intel concluded that tighter integration across its silicon, software, and systems would create stronger offerings in artificial intelligence, data centers, and edge computing—three areas where competition is fierce and differentiation matters.

The decision also means Intel walked away from talks with Ericsson (ERIC), which had been exploring a potential investment in NEX, according to Bloomberg. Earlier this year, Intel had publicly stated plans to separate the unit and find strategic backers, making this reversal particularly notable.

The Bigger Turnaround Picture

This shift is part of the broader turnaround led by CEO Lip-Bu Tan, who took the reins in March and has been methodically cutting jobs and offloading operations to stabilize the company. Intel's financial position has improved considerably since then, helped by some unconventional moves.

In August, an unusual Trump administration-brokered deal gave the U.S. government a 10% stake in Intel. Then came $2 billion from SoftBank (SFBQF) and $5 billion from Nvidia Corp (NVDA). Those investments helped fuel a sharp rally that more than doubled Intel's stock this year—up 118% year-to-date.

The company also delivered where it counts: third-quarter results that beat Wall Street expectations. Intel reported $13.65 billion in revenue and 23 cents in adjusted EPS, both above estimates. Revenue climbed 3% year over year, with Client Computing up 5%, though Data Center and AI slipped 1%.

Tan pointed to accelerating AI demand as a tailwind across Intel's CPU lineup, Application-Specific Integrated Circuits (ASICs), accelerators, and foundry services. He emphasized that Intel's U.S.-based manufacturing gives it a competitive edge—a positioning that's become increasingly valuable given geopolitical concerns around chip supply chains.

For the fourth quarter, Intel guides revenue to $12.8 billion to $13.8 billion and expects eight cents in adjusted EPS, matching analyst forecasts.

What About Ericsson?

Ericsson had reason to be interested in keeping Intel's networking business viable. The Swedish telecom giant relies on Intel-designed chips for its mobile network equipment, so a struggling or sold-off NEX unit could have complicated that relationship.

The two companies deepened their partnership last year when Ericsson announced that future network infrastructure would run on Intel's next-generation Xeon processors. That commitment made Ericsson a logical candidate to help prop up the networking division, but Intel's decision to keep it in-house suggests the chipmaker believes it can extract more value internally.

The Challenges Intel Still Faces

Even with the recent stock rally and improved financials, Intel faces significant headwinds. The company has struggled to match the technological pace set by Taiwan Semiconductor Manufacturing Co (TSM) and Samsung Electronics Co Ltd (SSNLF) in recent years.

Former CEO Pat Gelsinger was forced out after his ambitious and expensive foundry expansion plan failed to deliver quick returns. That setback prompted Intel to slash costs and consider selling non-core assets—the very process that led to the now-abandoned review of the networking unit.

Tan's approach seems to be about focus and integration rather than expansion for expansion's sake. By keeping NEX in-house and weaving it into the AI strategy, Intel is betting that a more cohesive product portfolio will help it compete more effectively in markets where it's lost ground.

Price Action: INTC stock is down 0.65% at $43.48 in premarket trading at last check on Thursday.