Intel Shifts Chip Capacity From PC Processors to Xeon Servers

Intel is moving part of its production resources away from consumer PC processors and toward server chips. The company expects the PC market to keep shrinking in the coming quarters, but argues that booming demand from the AI industry will more than offset the decline.

"The industry continues to experience one of the largest supply shortages in its history, driven by unprecedented demand for superintelligence technologies," CEO Lip-Bu Tan said, adding that he is pleased with third-quarter progress on server supply but expects many challenges in keeping up with demand.

Server demand outruns supply

Intel's Data Center and AI (DCAI) division posted revenue of $7.3 billion in the third quarter, up 17% from the previous quarter and 80% from a year earlier. Demand for server CPUs still exceeds supply, and Intel expects that to last through 2027 and 2028.

A priority is Xeon 6 Granite Rapids on the Intel 3 process. Expansion at Fab 24 near Leixlip, Ireland, will not come online before the end of 2027 unless it can be accelerated. To add Intel 3 capacity sooner, Intel will repurpose part of its Oregon resources previously earmarked for Intel 18A and Panther Lake client chips. The extra Intel 3 capacity there is due in the second half of 2027. Intel 3 production costs have fallen about 15% since the first quarter.

Arizona, packaging and costs

Intel is ramping Intel 18A at Fab 52 in Arizona and has started equipment installation at Fab 62 ahead of schedule. Fab 62 will be its second site for 18A and 18A-P. The company does not disclose how capacity there is split between client and data center products, though it still wants to grow its client share with Core Ultra 400 Nova Lake.

Advanced packaging is another bottleneck. Intel faces a shortage of organic substrates needed for EMIB and Foveros designs, and expects supplier output to rise by roughly 40% in the second half of 2027. It is also expanding packaging in New Mexico and Malaysia.

Capital spending is expected to reach about $20 billion in 2026 and increase in 2027. Firm orders with equipment suppliers rose nearly 40% from the prior quarter, and Intel wants to speed up its Ohio site. Because new tools must be installed and qualified and wafers need long production cycles, shortages are expected to be especially acute in the first half of 2027.