Jan 22 (Reuters) - Intel said on Thursday it struggled to satisfy demand for its server chips used in AI data centers, and forecast quarterly revenue and profit below market estimates, sending shares down 7% in after-hours trading.
The company forecast current-quarter revenue at between $11.7 billion and $12.7 billion, compared with analysts' average estimate of $12.51 billion, according to data compiled by LSEG.
It expects adjusted earnings per share to break even in the first quarter, compared with expectations of adjusted earnings of 5 cents per share.
Investors and analysts have hoped that rapid data center buildouts commissioned by large tech companies to advance their AI businesses will drive sales for Intel's traditional server chips that are used alongside Nvidia's market-leading graphics processing units (GPU).
Demand for AI surprised some of the cloud-computing giants, which have had to scramble in order to upgrade aging fleets of chips because of an "erosion in networking performance," finance chief David Zinsner told Reuters in an interview.
"They were all a little bit caught off guard," Zinsner said.
After years of missteps left Intel struggling in the fast-growing AI chip market and drained its finances, Tan has engineered a turnaround strategy centered on cutting costs and eliminating management layers, while championing a fresh product road map.
Tan has held off on investing heavily in Intel's next-generation manufacturing process known as 14A, while waiting for a large customer, Zinsner said. Investors will see evidence of the company's signing a lucrative manufacturing contract in capital spending, which will rise sharply if it lands a big deal, he said.
With a slew of high-profile investments in Intel last year - a $5 billion investment from Nvidia, $2 billion from SoftBank and a U.S. government stake in the company - investors' confidence in the company's revival has been high.
"For investors, the key insight is that Intel's turnaround story remains supply-constrained rather than demand-constrained; a frustrating position that delays the financial recovery despite competitive products and strong customer interest," Running Point Capital's chief investment officer, Michael Schulman, said.
Tan has also significantly pared back contract manufacturing ambitions promoted by his predecessor, Pat Gelsinger, in an effort to shore up Intel's balance sheet after capital-intensive expansions pummeled margins.
After a more than 60% drop in its share price in 2024, Intel's stock gained 84% in 2025, far outperforming the benchmark semiconductor index's 42% rise. Its shares are up more than 40% so far this month.
The company has started shipping its new "Panther Lake" PC chips - the first product made using Intel's make-or-break 18A manufacturing technology, and analysts expected the production ramp-up to hurt margins.
Reuters has reported that only a small percentage of the chips printed via 18A have been good enough to make available to customers. Intel has said its yields, or the number of good chips per silicon wafer, are improving monthly. Weak yields also routinely pressure margins.
A global shortage of memory chips has boosted the prices of those chips and made personal computers - a key market for Intel - more expensive. Zinsner said in a statement that he expects available supply to be at its lowest levels in the first quarter, and improve in the second quarter.
Intel has also been consistently losing share in the PC market to rival AMD and chip blueprint designer Arm Holdings.
(Reporting by Arsheeya Bajwa in Bengaluru and Max A. Cherney in San Francisco; Additional reporting by Stephen Nellis in San Francisco; Editing by Sayantani Ghosh and Matthew Lewis)
