Intel Shifts Production Capacity to Data Center Chips as Revenue Rises 21% to $16.5 Billion
Key Facts
Intel reported revenue of $16.5 billion in the third quarter of 2026, up 21% from $13.7 billion in the same period a year earlier, according to results published on October 29. Overall growth came alongside a clear divergence between its two main businesses: Data Center and AI revenue rose, while revenue from its Client Computing and Physical AI Group fell. Chief Executive Lip-Bu Tan said the company’s immediate priority was to increase supply to meet exceptional demand for the Xeon family. That puts manufacturing capacity’s ability to meet demand at the forefront of the company’s challenges, after it acknowledged that constraints in key components had limited product availability. Fourth-quarter guidance, meanwhile, came in below the average analyst estimate, sharpening focus on the gap between demand and production.
The Data Center and AI unit recorded 78% year-over-year revenue growth in the third quarter, according to Intel’s quarterly report filed with the U.S. Securities and Exchange Commission. The company attributed the increase mainly to a richer mix of premium products sold, with a smaller contribution from demand-related pricing measures. At the same time, revenue from the Client Computing and Physical AI Group fell 5% from the same period a year earlier. Intel said lower client-device sales volumes, driven by weak demand and intensifying competition, weighed on the group’s revenue, while higher average selling prices offset part of the decline. The contrast highlights the extent to which the company’s growth in the quarter depended on its data center business, while its client-device operations faced a weaker market.
Intel said supply constraints across the industry, including substrates, memory and other key components, affected its ability to provide enough products to meet demand. The company singled out data center processors as exposed to these pressures because they rely on substrates for advanced packaging. On the earnings call, the chief financial officer said capacity being taken offline in Oregon on 18A technology was generally allocated to Panther Lake products. The available capacity will be used to produce more data center chips, the CFO said, without specifying that the shift would increase Xeon 6 production in particular. Intel 3 production in Oregon is planned for the second half of 2027 to meet part of customer demand, the CFO said.
The capacity shift comes amid supply pressures and an expected slowdown in the personal-computer market. The CFO said that slowdown could last at least through the first half of 2027, and that the company would continue disciplined investment in production capacity and working capital to increase supply and support growth. Intel also said an explosion at its plant in Israel during October could reduce revenue by about $600 million over two quarters and cut supplies of AI server chips to cloud-computing customers. These factors add further pressure on the company’s ability to turn strong demand for data center chips into products available to customers. It forecast fourth-quarter revenue of between $15 billion and $16 billion, compared with an average analyst estimate of $17.07 billion, according to LSEG data cited by Reuters.
After announcing its results and outlook on the evening of October 29, Intel shares fell 23% in extended trading, according to Reuters. The shares closed at $65.76 on October 30, according to EL7 data. The company emphasized increasing supply, while production remains tied to component constraints and plans to shift capacity between consumer and data center products. “Our immediate priority is to enable additional supply to meet the exceptional demand for the Xeon family,” Tan said. Intel 3 production in Oregon is scheduled to begin in the second half of 2027, while the company expects the PC market to remain weak through the first half of that year.