Intel is reallocating manufacturing capacity away from consumer PC processors and toward data center CPUs, expecting surging demand from the AI industry to offset a shrinking PC market. The company reported data center and AI revenue of $7.3 billion in the third quarter of 2026, up nearly 80% from a year earlier, as chief executive Lip-Bu Tan described the industry as navigating "one of the most significant supply shortages in history."
Tan made the comments during the company's earnings call, saying he was "pleased by the progress we made growing our server supply in Q3" but "mindful about the ongoing challenges we face in the future quarters to keep pace with server demand." Intel is expanding its Fab 24 complex near Leixlip, Ireland, to produce more Xeon processors, with the extra capacity expected to come online by the end of 2027, and has begun installing equipment into Fab 62 in Arizona ahead of schedule, pledging to make 18A chips there.
The shift comes as the consumer PC market continues to contract, while Intel expects demand for data center CPUs to remain strong through 2027 and 2028 as AI infrastructure operators deploy more CPU-intensive agentic and inference workloads. One immediate priority is increasing output of Xeon 6 "Granite Rapids" processors, built on its Intel 3 process, which Intel says has already become its fastest-ramping server processor family even though demand still exceeds supply.
To add Intel 3 capacity, Intel plans to convert some manufacturing resources at its Oregon facilities from Intel 18A, which were originally intended for Panther Lake client processors, to Intel 3. "What we are taking offline to put Intel 3 into Oregon is 18A wafers, which we are generally going to build Panther Lake products," said chief financial officer Dave Zinsner. "We see the opportunity with some of that capacity freed up to go produce more data center wafers." The additional Oregon capacity is expected to enter production in the second half of 2027.
In Arizona, Intel is ramping Intel 18A production at Fab 52 and accelerating equipment installation into the adjacent Fab 62, which is set to become its second high-volume manufacturing facility for 18A and its derivatives. The company says the investments will support future server CPUs, though it has not disclosed how capacity at the site will be split between client and data center products, and it expects to win some client market share with its Core Ultra 400-series "Nova Lake" CPUs.
Intel also faces shortages of advanced organic substrates needed to package its multi-chiplet processors relying on EMIB and Foveros 3D packaging. "We are not only constrained on the wafer side, we are also constrained on the substrate side," Zinsner said. Intel is working with substrate suppliers to expand capacity and expects approximately 40% additional substrate capacity to become available in the second half of 2027. It is also expanding advanced packaging operations in New Mexico and Malaysia, and Tan said the company was seeing "robust progress in the readiness of Hybrid Bonding Interconnect (HBI), which is an enabler of 3D chip stacking for our upcoming server products."
Intel expects capital expenditure of approximately $20 billion in 2026, with a significant increase in 2027, and said firm purchase orders to semiconductor equipment suppliers rose nearly 40% sequentially. "We are also accelerating clean room build-outs, including Fab 62 in Arizona and exploring opportunities to accelerate in Ohio," Zinsner said. The company expects supply constraints to remain particularly severe during the first half of 2027 and believes additional manufacturing capacity, higher yields and improved substrate availability will enable it to capitalize on demand for AI infrastructure in the second half of 2027 and beyond.
Analysis
Why This Matters
- Intel's production priorities shape global supply of both PC and server chips; diverting capacity to data center CPUs could tighten consumer processor availability as AI demand grows.
- The build-out in Ireland, Arizona and Oregon will determine whether AI infrastructure operators can get the server CPUs they need through 2027.
- Persistent shortages would keep data center CPU prices and lead times elevated, affecting AI deployment costs.
Background
Intel is one of the world's largest chipmakers, producing processors for personal computers and data centers, with its Xeon line widely used in servers. It is transitioning to newer manufacturing processes such as Intel 3 and 18A while expanding production to keep pace with AI-driven demand. The company's comments came during its third-quarter earnings call, as it navigates what its chief executive called one of the most significant supply shortages in history.
Key Perspectives
Lip-Bu Tan (Intel CEO): says the industry is navigating "one of the most significant supply shortages in history," driven by unprecedented demand for "Super Intelligence," and that he is pleased with progress growing server supply in Q3 while mindful of challenges ahead.
Dave Zinsner (Intel CFO): says Intel is constrained on both the wafer and substrate sides, and that capacity freed up from client processors can be redirected to produce more data center wafers.
What to Watch
- Whether the Fab 24 expansion in Ireland comes online by the end of 2027 as planned.
- Whether the Oregon conversion from 18A to Intel 3, targeted for the second half of 2027, eases Xeon supply.
- Whether substrate suppliers deliver the roughly 40% additional capacity expected in the second half of 2027.
Checked
12 claims in this story checked against 1 source: 10 supported.
Show each claim
- Partly supportedIntel is shifting manufacturing capacity from consumer PC processors toward data-center CPUs.Latest from Tom's Hardware: “To that end, the company is reallocating some of its capacity from client to data center CPUs”
- SupportedIntel expects AI demand to offset declines in the consumer PC market.Latest from Tom's Hardware: “Intel is confident that the overwhelming demand from the AI industry for everything that can compute or store data will offset declines in the client space.”
- SupportedIntel’s Data Center and AI business generated $7.3 billion in third-quarter 2026 revenue, nearly 80% higher than a year earlier.Latest from Tom's Hardware: “The company's Data Center and AI (DCAI) business generated $7.3 billion in revenue in the third quarter of 2026, up 17% sequentially and nearly 80% year-over-year.”
- SupportedTan said the industry was navigating “one of the most significant supply shortages in history.”Latest from Tom's Hardware: ““The industry continues to navigate one of the most significant supply shortages in history, driven by the unprecedented demand for Super Intelligence,” said Lip-Bu Tan”
- SupportedTan said he was “pleased by the progress we made growing our server supply in Q3” and “mindful about the ongoing challenges we face in the future quarters to keep pace with server demand.”Latest from Tom's Hardware: ““Against this backdrop, I am pleased by the progress we made growing our server supply in Q3. I am mindful about the ongoing challenges we face in the future quarters to keep pace with server demand.””
- SupportedIntel is expanding Fab 24 near Leixlip to make more Xeons, with capacity expected by the end of 2027.Latest from Tom's Hardware: “The company recently began expanding production capacity at its Fab 24 manufacturing complex near Leixlip, Ireland, but this capacity will only come online by the end of 2027, unless the move can be accelerated.”
- SupportedIntel plans to convert some Oregon manufacturing resources from Intel 18A to Intel 3, with additional capacity expected to enter production in the second half of 2027.Latest from Tom's Hardware: “Intel plans to convert some manufacturing resources at its Oregon facilities from Intel 18A to Intel 3. ... The company expects the additional Intel 3 capacity in Oregon to enter production in the second half of 2027.”
- SupportedThe Oregon 18A wafers being taken offline were generally intended for Panther Lake products, Zinsner said.Latest from Tom's Hardware: ““What we are taking offline to put Intel 3 into Oregon is 18A wafers, which we are generally going to build Panther Lake products,” said Dave Zinsner”
- Partly supportedIntel’s multi-chiplet processors rely on both EMIB and Foveros 3D packaging.Latest from Tom's Hardware: “The company also faces shortages of advanced organic substrates required to package its multi-chiplet processors (or rather system-in-packages, or SiPs?) that rely on EMIB and/or Foveros 3D packaging technologies.”
- SupportedIntel expects approximately 40% additional substrate capacity to become available in the second half of 2027.Latest from Tom's Hardware: “Intel ... expects approximately 40% additional substrate capacity to become available in the second half of 2027.”
- SupportedIntel expects capital expenditure of approximately $20 billion in 2026, with a significant increase in 2027.Latest from Tom's Hardware: “Intel expects its capital expenditure (CapEx) budget to reach approximately $20 billion in 2026 and increase significantly in 2027”
- SupportedIntel expects supply constraints to remain particularly severe during the first half of 2027.Latest from Tom's Hardware: “Consequently, the company expects supply constraints to remain particularly severe during the first half of 2027”
