While Intel CEO Lip-Bu Tan says he is ‘pleased by the progress’ it’s made in growing server CPU supply in the third quarter, he acknowledges the ‘ongoing challenges we face in the future quarters to keep pace with the server demand’—and warns of a ‘PC slowdown.
Intel CEO Lip-Bu Tan said Thursday that he’s “disappointed” the company was “not able to meet strong demand” in the third quarter as he cited “near-term challenges” that included supply shortages and the “resulting softness in PC demand.”
Tan made the remarks during the chipmaker’s third-quarter earnings call after it reported a 15-year record for data center revenue growth but fell short of Wall Street’s expectations with its forecast for sales and profit in the current quarter.
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With hyperscalers, neoclouds and other companies continuing to deploy new data centers at a breakneck pace to support rapidly evolving AI workloads, Intel and other semiconductor companies have been facing high demand for CPUs. One big driver is agentic AI, which is creating a shift to higher concentrations of CPUs in data centers.
While Tan said he is “pleased by the progress” Intel has made in growing server CPU supply in the third quarter, which ended in late September, Tan acknowledged the “ongoing challenges we face in the future quarters to keep pace with the server demand.”
A senior executive at an Intel systems integration partner in the U.S. told CRN that he hasn’t seen the kind of CPU shortages that Intel is reporting, but he suspects that’s because OEMs like Dell Technologies and Supermicro have the proper allocations for the kinds of enterprise customers that companies like his are servicing.
“They’re a little bit more aligned to the general schedule and forecast of what all of us need whereas those hyperscalers come in and say, ‘Yeah I’ll take everything you have, what else you got?’” said the executive, who asked to not be named to speak candidly.
The system integrator’s enterprise customers are not yet building data centers for the kind of autonomous AI agents that are creating a need for one-to-one ratios between CPUs and GPUs, according to the executive.
However, the executive added, he does expect more inference workloads in general to shift to on-prem data centers for such customers.
“Those do require way more CPUs, just in the general setup of those deployments, so I think it’s going to move that way for them too,” he said.
Tan Cites Three Headwinds In Meeting AI-Driven CPU Demand
Tan said the Santa Clara, Calif.-based company is facing three main headwinds that are “limiting our progress to meet this extremely high AI-driven demand.”
These headwinds include the manufacturing yield and cycle time for the Intel 3 process node, which “continues to improve,” according to the CEO. But, he added, “I am demanding significant execution from the team.”
Tan also pointed to “an industry-wide shortage of advanced organic substrates” for the company’s EMIB chip packaging technology, which is used in Intel’s most recent generation of Xeon processors, the Xeon 6 and Xeon 6+ lineups.
This, he said, is “also impacting our ability to scale output.”
The third headwind cited by Tan is an explosion that happened earlier this month at an Intel fabrication plant in Israel that killed two workers. Calling it an “unfortunate and tragic accident” that led to a shutdown of the factory, Tan said the incident will impact the company’s shipments of 10-nanometer server CPUs in the fourth quarter.
Using the $20 billion common stock offering Intel raised in August, the company is “deploying this capital and prudently” to improve manufacturing capacity, he added.
“We expect [capital expenditures] and purchase commitments for key components to increase significantly over the next several quarters,” Tan said. “I want to thank our substrate, memory, foundry, equipment suppliers for their strong partnership and collaboration as we work together to expand supply and support growing demand.”
Tan: Intel Customers Have Signaled A ‘PC Slowdown’
Tan said Intel’s customers in recent weeks “began signaling a PC slowdown based on the memory prices and availability” tied to industry-wide shortages driven by the AI boom.
The memory shortages, he added, have caused PC prices to increase “significantly,” placing additional pressure on already limited IT budgets.”
“The pace of this PC correction has accelerated over the last two months as our OEM partners are aggressively managing inventory to match the softer sell-through,” Tan said.
This caused Intel’s PC revenue to decline by 5 percent year over year in the third quarter, and it’s the main reason it expects to deliver weaker-than-expected revenue and profit in the fourth quarter, with client sales forecasted to fall by 20 percent sequentially.
Intel expects this slowdown to continue through at least the first half of next year.
“We expect the current environment to persist until memory availability and prices begin to normalize,” Tan said. “While the next few quarters will be challenging for the PC market, our road map continues to strengthen, and our long-term outlook remains positive.”
