How Intel Got Caught Off Guard By A CPU Shortage Again

The warning by Intel CFO David Zinsner last October that CPU shortages would peak in the first quarter ended up being correct. But the extent to which demand surpassed supply seemed to surprise the chipmaker, as executives indicated in its latest earnings call.

Intel has been caught off guard again by higher-than-expected demand for its CPUs, and the situation is leading to shortages that are putting a damper on revenue and the ability of partners to sell systems using its processors.

The Santa Clara, Calif.-based company first started talking about a new wave of CPU shortages, defined by a lack of supply by the chipmaker to meet demand from customers, last October during its third-quarter earnings call.

At the time, Intel CFO David Zinsner said that that supply constraints “limited our ability to fully meet demand for both data center and client products.” While the company was mainly experiencing a shortage of products from its older Intel 10 and Intel 7 manufacturing nodes, the CFO noted that there were constraints “pretty much across our business.”

Zinsner’s warning last October that CPU shortages would peak in the first quarter, which ends in late March, ended up being correct. As a result of these constraints, the company forecast that first-quarter revenue would come in between $11.7 and $12.7 billion, with the midpoint reflecting the lower end of typical sales for the season.

But the extent to which demand surpassed supply seemed to surprise Intel, and it’s not the first time this has happened in the past several years.

How Intel’s CPU Shortage Started Several Months Ago

During Intel’s third-quarter earnings call last October, Zinsner attributed Intel’s CPU shortages mainly to unexpectedly high demand for older generations of the company’s processors for PCs. These consisted of products manufactured on the Intel 10 and Intel 7 nodes, including the 14th-generation Core “Raptor Lake Refresh” CPUs from 2023.

The company’s third quarter ended in late September.

The CFO tied demand for older PC processors to the Windows 11 refresh, driven by Microsoft ending support for Windows 10 last October. Customers were opting more often for these older chips despite pushes by Intel and other companies to encourage adoption of AI PCs, including Microsoft’s Copilot+ PCs, powered by newer generations of CPUs.

“What clearly is happening is the Windows refresh is happening more significantly than I think we expected. And you know that that’s not necessarily an AI PC story, and so Raptor Lake is also a product that addresses that. And so we’re just seeing upside in that part of the market as well,” he said on the earnings call.

While Zinsner said Intel was seeing double-digit sequential growth with AI PC products like the Core Ultra 200V “Lunar Lake” lineup and was on track to ship about 100 million processors for AI PCs by the end of the year, he admitted the company has to ensure the “ecosystem drives enough applications for AI in the PC space. “

The CFO also noted last October that Intel was unable to fully meet demand for its Xeon CPUs, mainly with products made using the Intel 10 and Intel 7 nodes. These included the fifth-generation Xeon Scalable “Emerald Rapids” lineup, also from 2023.

“The strength in host CPUs for AI servers and storage compute continued in the quarter, even as supply constraints limited additional upside,” Zinsner said.

How Intel’s CPU Shortage Became More Acute In Late 2025

Last Thursday, Zinsner confirmed in Intel’s fourth-quarter earnings release that it would hit the peak of its CPU supply constraints in the first quarter.

The company managed to surpass its expectations for revenue, gross margins and earnings per share in the fourth quarter, which ended in late December.

However, Intel CEO Lip-Bu Tan said that the ongoing shortages “meaningfully limited our ability to capture all of the strengths in our underlying markets.”

“We are working aggressively to address this and better support our customers’ needs,” he said during the company’s earnings call.

But whereas the third-quarter call focused on unexpected demand for older generations of PC processors, the fourth-quarter discussion pointed to a surge in demand for Intel’s Xeon server CPUs that went well beyond what the company anticipated—even when considering what had happened in the prior three months.

This was highlighted by Zinsner, who said that Intel’s Data Center and AI segment had experienced the “fastest sequential growth” it had seen this decade, noting that “revenue would have been meaningfully higher if we had more supply.”

With Tan pointing to the ongoing AI data center boom as the main cause of the Xeon shortage, Zinsner indicated that demand for such products caught Intel off guard, especially when it came to the company’s hyperscaler customers.

“If you go back six months or so ago and looked at what the outlook was, core count was absolutely looking like it would increase, but the units were not expected to increase, and that every hyperscaler customer we talked to was signaling that,” Zinsner said.

“Obviously, it has rapidly increased over the third and fourth [quarters]. And in talking to a few of [the hyperscaler customers] right before this call, [we] got the feeling like it was going to be a story we’d feel for several years,” he added.

As for Intel’s PC business, Zinsner said Intel’s client CPU inventory was lean. The company’s overall inventory was down to 40 percent of the peak level.

“So we don’t have that to rely on. It’s just literally hand to mouth—what we can get out of the fab and what we can get the customers is how we’re managing it,” he said.

How Manufacturing Yield Contributed To Shortages

The biggest issue that held Intel back from producing more chips in the fourth quarter was the company’s manufacturing yield.

The manufacturing yield refers to the rate at which Intel can make usable processors from silicon wafers, as every wafer is bound to have some level of defects. Since the yield determines how many finished products Intel can make and sell, it serves as a key measure for the efficiency of the company’s manufacturing operations.

In last Thursday’s call, Tan admitted that while the yield is “in line with our internal plans, they are still below what I want them to be.” He added that improving the yield will be an “important lever” this year “as we look to better support our customers.”

Zinsner underlined the importance of yield improvement to Intel’s production capacity.

“Certainly improving yields and throughput are a great driver of supply increases,” he said. “In fact, it’s got a great [return on investment] to it because it doesn’t require any incremental capital. So that’s what Lip-Bu and I are actively working on to improve. And we’re reasonably confident that there’s a good trajectory there.”

How Intel Plans To Manage And Improve Supply Through 2026

Facing these supply constraints, Intel plans to boost production capacity after the first quarter by improving the yield and investing in more manufacturing tools.

With the incremental tool spending, Zinsner expects improved supply across the company’s three main production nodes: Intel 7, Intel 3 and Intel 18A.

“We are ramping up tool spending quite a bit in [2026] relative to [2025] to address this supply shortfall as well. And in fact, every quarter we’re seeing wafer start increases pretty much across the board—across Intel 7, Intel 3 and Intel 18A—so all three of them, every quarter improve and get better to address the supply,” he said.

Zinsner and Tan emphasized how Intel is continuously improving yield for Intel 18A, which entered high-volume production last year to support the recent launch of the company’s Core Ultra Series 3 “Panther Lake” processors for PCs.

“Yields continue to improve steadily as we work to ramp the supply needed to meet strong customer demand,” Tan said.

In the meantime, Intel plans to manage supply constraints by prioritizing the production of server CPUs over Core client CPUs without abandoning its PC customers.

“As a function of supply, shifting as much as we can over the data center to meet the high demand, but we can’t completely vacate the client market, so we’re trying to support both as best we can,” Zinsner said.

As a result, Intel is focusing client CPU production on midrange and high-end products and putting less emphasis on low-end products, according to the CFO. The company is also “leveraging an increased mix of externally sourced wafers in client,” he added.

“Our primary focus is to our main customers. And we have important customers on the data center side. We have important OEM customers, both data center and client, and that needs to be our priority to get the limited supply we have to those customers,” Zinsner said.

One important factor for how Intel plans to allocate CPU supply is the industrywide memory chip shortage, which is the result of high demand from new AI data centers.

Tan said that while large OEMs and hyperscalers have more access to memory chips, smaller partners and customers have had to “scramble to get the memory.”

As a result, Intel is working more closely with these smaller partners and customers to ensure that it provides CPUs to those that have memory chip supplies to sell complete systems.

“We don’t want to have a CPU we sent to them but they are missing the memory. They cannot complete the product, so we try to do it correctly,” Tan said, adding that it’s important for Intel’s customers and partners to provide feedback on what they have.

Intel Was Rocked By CPU Shortage Several Years Ago

While Intel and many other companies all dealt with supply constraints after the COVID-19 pandemic began in 2020, the chipmaker faced its own problems in the two years prior.

Starting in 2018, the company had a shortage of CPUs, which it later attributed to unexpectedly strong demand for commercial PCs and servers. The shortage had a wide-ranging impact on the PC market before supply improved in mid-2019.

Intel responded to supply issues at the time by investing $1 billion into additional manufacturing capacity, introducing a new tier of CPU models without integrated graphics and prioritizing higher-end CPUs for servers and PCs, among other things.