Intel is shifting some of its manufacturing capacity from consumer processors to server CPUs as demand from artificial intelligence companies continues to grow. The company is facing what CEO Lip-Bu Tan describes as “one of the most significant supply shortages in history,” with demand for processors now exceeding what Intel can produce.
Intel expects the consumer PC market to continue contracting in the coming quarters as demand for server processors continues to increase. To keep pace, the company is shifting some manufacturing capacity from consumer CPUs to server chips. It is also expanding production at its Fab 24 plant in Ireland, where it plans to produce more Xeon processors and accelerate equipment installation at Fab 62 in Arizona.
One of Intel’s immediate priorities is to increase production of Xeon 6 processors based on the Granite Rapids architecture. Demand for these CPUs already exceeds available supply, despite planned production increases. Intel’s Data Center and AI division generated revenue of $7.3 billion in the third quarter of 2026, up 17% sequentially and nearly 80% year over year. The company expects demand to remain strong in 2027 and 2028 as AI operators deploy more CPU-intensive inference and agentic workloads.
Intel is also converting some manufacturing resources in Oregon from the 18A process, originally intended for Panther Lake PC processors, to Intel 3 manufacturing for data center chips. The additional Intel 3 capacity is expected to be available in the second half of 2027. At the same time, Intel is installing more equipment at its Arizona facilities to support future 18A and 18A-P products, including server processors.
The shortage isn’t limited to wafer manufacturing. Intel is also struggling to source sufficiently advanced packaging materials, particularly the substrates used in its multi-chip processors. The company is working with suppliers to increase production and expects approximately 40% more substrate capacity to be available in the second half of 2027. It is also expanding its packaging operations in New Mexico and Malaysia.
However, these changes will take time to improve the offering. Intel expects shortages to remain particularly severe through the first half of 2027, even as it works to ramp up production. The company expects to spend about $20 billion in capital expenditures in 2026, with investments expected to increase significantly next year.
Intel believes increased manufacturing production, improved yields and additional packaging capacity will help meet growing demand in the second half of 2027 and beyond. Until then, the company will have to balance limited manufacturing capacity between its consumer CPU business and the rapidly expanding AI infrastructure market.
