Intel’s Chief Financial Officer, David Zinsner, revealed during the company’s fourth-quarter earnings call that the demand for server CPUs over the past two quarters has exceeded expectations, particularly among hyperscaler customers. This surge is attributed to the ongoing boom in AI data centers, which Intel warned could negatively impact demand for PC chips.
In its latest earnings release, Intel reported a revenue decline of 4 percent year-over-year, totaling $13.7 billion. This figure was consistent with the previous quarter and slightly above Wall Street analysts’ estimates, as well as Intel’s own forecasts. The company also reported a non-GAAP earnings per share of 15 cents, reflecting a 15 percent increase from the previous year, exceeding analyst consensus and internal expectations. Despite a gross margin of 37.9 percent on a non-GAAP basis, which is down 4.2 points, it still surpassed the company’s own projections.
Intel expects CPU shortages to peak in the first quarter, which ends in late March. Zinsner noted that supply limitations have hindered the company’s ability to meet rising demand, particularly for traditional server CPUs used in AI data centers. CEO Lip-Bu Tan commented on the earnings call that despite these supply constraints, Intel managed to report results that exceeded financial expectations. “We delivered these results despite supply constraints, which meaningfully limited our ability to capture all of the strengths in our underlying markets,” he said, indicating an aggressive effort to improve supply.
Looking ahead, Intel forecasts its first-quarter revenue will fall between $11.7 billion and $12.7 billion, suggesting an 11 percent sequential decline and a 3.9 percent decrease from the same period last year. Following the earnings announcement, Intel’s stock price fell over 12 percent in after-hours trading, landing at $47.60.
AI Demand for Server CPUs Seems To Catch Intel Off Guard
For the fourth quarter, Intel’s Data Center and AI segment was the standout performer, with revenue growing 9 percent year-over-year to $4.7 billion. Zinsner stated this marked the “fastest sequential growth” the segment has seen this decade, attributing it to strong demand for server products within AI data centers. “Revenue would have been meaningfully higher if we had more supply,” Zinsner said.
Tan emphasized that the rise in data center revenue was propelled by “very strong” demand for traditional server CPU products, noting the increasing importance of CPUs in the AI landscape. “The continuing proliferation and diversification of AI workloads is placing significant capacity constraints on traditional and new hardware infrastructure,” he remarked. He added that the company is focused on ramping its production capacity to meet this heightened demand, including partnerships with key customers to support their needs into 2026 and beyond.
Elaborating further on the demand drivers, Zinsner highlighted the significance of AI inference workloads, particularly those operated by autonomous agents. “The world is shifting from human-prompted requests to persistent and recursive commands driven by computer-to-computer interactions,” he said, indicating that the CPU’s role in managing this traffic would not only sustain traditional server upgrades but also stimulate new demand.
Despite recognizing the unexpected spike in demand, Zinsner mentioned that the company had not anticipated such significant increases in server CPU units among hyperscaler customers. He cited discussions with these customers indicating a clear trend towards increased demand that would likely persist for several years. “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,” he noted.
On the Client Computing side, the company faced challenges due to the CPU supply squeeze, leading to a 7 percent revenue decline to $8.2 billion. Zinsner conveyed that the company is prioritizing the production of high-end and mid-range processors over low-end models, channeling excess production into the data center space to meet demand. “Our primary focus is to our main customers. And obviously we have important customers on the data center side,” he stated, emphasizing that adjustments would be necessary based on these priorities.
Intel is also grappling with broader industry-wide component shortages that could further limit its client revenue this year, attributed to the accelerated demand from the AI data center expansion. “Over the last several months, industry-wide supply for key components like DRAM, NAND, and substrates have come under increasing pressure due to intense demand,” Zinsner stated, underscoring the significant challenges Intel faces as it navigates this rapidly evolving market landscape.
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