By Arsheeya Bajwa and Max A. Cherney
Jan 22 (Reuters) – Intel said on Thursday it was struggling to meet demand for its server chips used in AI data centers and forecast quarterly revenue and profit below market estimates, sending shares down 13 percent in after-hours trading.
The forecast underscores the difficulty Intel faces in predicting global chip markets, where the company’s current products are the result of decisions made years ago. The company, whose shares have risen 40% in the past month, recently released a long-awaited laptop chip designed to regain its lead in personal computers, just as a memory chip crisis is expected to dent sales in that industry.
Meanwhile, Intel executives said the company had been caught off guard by growing demand for the server CPUs that accompany its AI chips. Despite running its factories at full capacity, Intel can’t keep up with chip demand, leaving lucrative data center sales on the table as the new PC chip squeezes its margins.
“In the short term, I am disappointed that we are not able to fully meet the demand in our markets,” Chief Executive Lip-Bu Tan told analysts on a conference call.
The company estimated revenue for the current quarter between $11.7 billion and $12.7 billion, compared with the average analyst estimate of $12.51 billion, according to data compiled by LSEG.
Adjusted earnings per share are expected to break even in the first quarter, compared with expectations for adjusted earnings of 5 cents per share.
Investors and analysts had hoped that the rapid build-out of data centers ordered by big tech companies to promote their artificial intelligence businesses would drive sales for Intel’s traditional server chips, which are used alongside Nvidia’s graphics processing units (GPUs).
The demand for artificial intelligence has surprised some of the cloud computing giants, which have been forced to grow aging fleets of chips because of an “erosion of network performance,” Chief Financial Officer David Zinsner told Reuters in an interview.
“They were all a little caught off guard,” Zinsner said.
During the conference call with investors, Zinsner said that despite owning its own factories, Intel faces a lag time in changing the types of chips it makes and that the company does not manage its factories with the expectation that data center demand will change.
TWO CUSTOMERS ENGAGED IN CONTRACT PRODUCTION
After years of missteps left Intel struggling in the fast-growing AI chip market and draining its finances, Tan devised a turnaround strategy centered on cutting costs and shedding layers of management while maintaining a roadmap for new products.
Intel has held back on investing heavily in its next-generation manufacturing process, known as 14A, in anticipation of a big customer, Zinsner said. Like its rivals in the foundry industry, Intel is tight-lipped about its customers, but Zinsner said investors will be able to tell when it will win a customer by looking for increased capital spending.
Tan said on the conference call that two customers were evaluating the technical details of the 14A technology, a possible step toward creating test chips with it. Intel executives said they expect to know by the second half of this year whether external customers want to use the technology.
Zinsner said the company also believes its capital spending could remain flat, versus earlier expectations that it would decline.
With a series of major investments in Intel last year — a $5 billion investment from Nvidia, $2 billion from SoftBank and a US government stake in the company — investor confidence in the company’s revival was high.
“For investors, the key takeaway is that Intel’s recovery story remains limited by supply, not demand; a frustrating position that is delaying its financial recovery despite competitive products and strong customer interest,” said Michael Schulman, chief investment officer of Running Point Capital.
Tan also significantly scaled back the contract manufacturing ambitions promoted by his predecessor, Pat Gelsinger, in an effort to shore up Intel’s balance sheet after capital-intensive expansions hurt margins.
After a more than 60% drop in its share price in 2024, Intel shares have gained 84% in 2025, far outpacing the 42% rise in the semiconductor benchmark.
The company began shipping its new “Panther Lake” PC chips – the first product made using Intel’s make-or-break 18A manufacturing technology, and analysts expected the production ramp-up to hurt margins.
Reuters reported that only a small percentage of the chips printed by 18A were good enough to be available to customers. Intel said its yields, or the number of good chips per silicon wafer, are improving monthly. Weak yields also currently pressure margins.
During the conference call, Tan said the 18A’s yields are in line with Intel’s internal plans, but are “still below what I want them to be.”
The global shortage of memory chips has driven up the prices of those chips and made personal computers – a key market for Intel – more expensive. Zinsner said in a statement that it expects available supply to be at its lowest level in the first quarter and to improve in the second quarter.
Intel has also steadily lost PC market share to rival AMD and chip designer Arm Holdings.
(Reporting by Arsheeya Bajwa in Bengaluru and Max A. Cherney in San Francisco; Additional reporting by Stephen Nellis and Noel Randewich in San Francisco; Editing by Sayantani Ghosh and Matthew Lewis)
