With the noticeable rise in PC prices, Intel’s recent announcement sheds light on more than just escalating memory costs. Intel has unveiled a strategic decision to redirect foundry resources from client chip production towards fulfilling the growing demand for Xeon processors powering AI servers.

During the company’s Q4 earnings call, CFO David Zinsner acknowledged Intel’s unexpected challenge as data center product demand surged, resulting in a temporary capacity shortfall. Previously, signals from hyperscale clients indicated reduced orders for high-core count chips; however, this projection quickly shifted, leading to increased Xeon demand throughout the latter half of the year.

To address this, Intel is allocating as much capacity as possible to data center products to meet this heightened demand. While the focus remains on Xeons, Intel reassures that it won’t completely sideline its client business. The company is targeting the mid-to-high-end sectors and reallocating excess capacity to data center products, prioritizing profitability.

Intel isn’t alone in this struggle; major memory manufacturers like Micron, SK Hynix, and Samsung are also experiencing capacity constraints due to AI-driven demand. Rising memory prices have hence encouraged Intel to prioritize data center products.

Optimistically, Zinsner anticipates that Intel’s capacity challenges may ease by the next quarter as efforts to enhance wafer throughput through improved yields and new tools across various process nodes are underway.