Intel puts consumer chip production on back burner as datacenters make a run on Xeons
If you notice PC prices creeping up over the next few months, the rising cost of memory won’t be the only reason, because on Thursday Intel said it is reallocating foundry capacity from client chips to meet surging demand for Xeon processors used in AI servers.
Speaking with analysts on Intel's Q4 earnings call Thursday, CFO David Zinsner admitted the company was caught with its pants down after it misjudged demand for its datacenter products, leading to a capacity crunch during the quarter.
Zinsner said six months ago “every hyperscale customer” was sending signals they planned to order a smaller number of high-core count chips.
They soon changed their tune and demand for Intel's Xeon products increased considerably over the third and fourth quarters. Intel's Xeon 6 platform is used extensively as the host CPUs in GPU systems like Nvidia’s DGX B200 and B300, and in many AMD Instinct-based GPU boxes.
To meet that demand Zinsner said Intel is " shifting as much as we can over to the data center.”
But don't worry, the exec promises the x86 giant won't abandon its client business "completely" to chase AI revenues in the datacenter.
"Within the client, we're focusing on the mid-and-high end, and [we're] not as focused on the low end. To the extent we have excess [capacity], we're pushing all of that into the datacenter space," the CFO said.
In other words, Intel is prioritizing higher-margin Core-series parts to make way for Xeons, and cheap PCs packing low-end Intel processors may become harder to find.
Intel isn't the only one reallocating wafer capacity. Major memory vendors, including Micron, SK Hynix, and Samsung, are also grappling with capacity shortages in the face of AI demand.
Over the past few months, all three have begun shifting advanced manufacturing capacity to high-margin DRAM and high-bandwidth memory products used in AI servers and accelerators. At the same time, consumer memory prices have more than tripled.
Rising memory prices appear to have played into Intel's decision to put client products on the back burner.
"Over the last several months, industry-wide supply for key components like DRAM and substrates has come under increasing pressure due to intense demand to support the rapid expansion of AI infrastructure," Zinsner said. "Rising component pricing is a dynamic we continue to watch closely, especially relative to the client market, and could limit our revenue opportunity this year."
There's not much point in allocating foundry capacity to client processors if PC buyers are scared away by inflated price tags that reflect the increasing cost of memory.
Zinsner does expect Intel's capacity constraints to ease beginning in the second quarter of its current financial year. In addition to improving yields which drive higher wafer throughput, the foundry operator is working to bring additional tooling online across its Intel 7, Intel 3, and Intel 18A process nodes.
The ramp of Intel's Core Ultra 3-series processors, codenamed Panther Lake, should also help to some degree. These chips make heavier use of Intel's latest generation 18A process node. As of writing, that fab tech is only used by one Xeon product, Clearwater Forest, which is not commonly deployed in AI applications.
Despite ongoing supply constraints, CEO Lip Bu Tan touted the quarter as another step toward rehabilitating the ailing chip biz.
"Our Q4 was another positive step forward, revenue, gross margin, and EPS were all above our guidance," he said. "We delivered this result despite supply constraints, which meaningfully limited our ability to capture all of the strengths in our underwriting market."
While Intel may have beat Wall Street's performance predictions, the company hasn't exactly returned to its former glory. In its fourth quarter, Intel posted a $591 million loss on revenues that slid four percent year over year (YoY) to $13.7 billion.
Intel's Foundry division was once again the source of the company's bleeding, posting an operating loss of $2.5 billion for the quarter.
However, compared to the disaster that was Intel's 2024 fiscal year, the past year was quite the improvement. In 2025, Chipzilla only managed to lose $267 million on revenues of $52.9 billion. That's compared to the $18.8 billion loss the year prior, which likely contributed to Tan replacing Pat Gelsinger as CEO.
Intel forecast revenue of between $11.7 and $12.7 billion for the first quarter of 2026. ®
