Intel’s Cost-Cutting Move Backfires as Demand Surges

Intel US4581401001

A strategic miscalculation in production capacity has inflicted significant damage on Intel, despite the company posting robust quarterly figures. On January 23, 2026, the semiconductor giant reported solid earnings, yet its stock plummeted by 17% in its worst trading session in 17 months. The collapse was triggered by a costly error in the company's downsizing strategy.

In a classic cost-reduction initiative under CEO Lip-Bu Tan, Intel decommissioned expensive fabrication lines dedicated to older datacenter processors, including the Emerald Rapids and Granite Rapids models. The timing proved disastrous. In the second half of 2025, demand for these exact chips surged unexpectedly as major clients like OpenAI, Amazon Web Services, and Google placed substantial orders to expand their AI infrastructure.

The company is now unable to meet this wave of demand. CFO David Zinsner was blunt in his assessment: "We cannot fulfill all of our customers' demand. It is literally hand-to-mouth."

The financial repercussions are clear in the guidance for Q1 2026:
* Revenue is projected between $11.7 and $12.7 billion, compared to a consensus estimate of $12.5 billion.
* Earnings per share are forecast at $0.00, starkly below the anticipated $0.08.

Technological Wins Overshadowed by Operational Miss

The situation is underscored by a deep irony: Intel's technological execution has finally shown promise. Its 18A manufacturing node, featuring PowerVia backside power delivery and RibbonFET transistors, is now in high-volume production. At CES 2026, the firm unveiled the Core Ultra Series 3 "Panther Lake" processor, boasting a 27-hour battery life.

Furthermore, the company's order book is filling with major commitments:
* Apple will contract Intel to manufacture entry-level M-series processors starting in 2027.
* Microsoft signed a $15 billion deal for custom-designed chips.
* Amazon Web Services placed multi-billion dollar orders for Xeon 6 and AI Fabric chips.
* The U.S. government awarded a $3 billion contract for defense-related semiconductors.

However, yield issues on the new 18A process are a concern. Analysis from KeyBanc estimates yields at 65% to 75%, which remains below the threshold for profitability.

Divergent Views from Market Experts

Wall Street analysts are sharply divided on the stock's outlook. KeyBanc's John Vinh maintains a $65 price target, citing the strategic Apple partnership as a key support. In stark contrast, Bernstein's Stacy Rasgon sees shares falling to $21, arguing, "The stock ran on sentiment and tweets. Theoretically, they should be able to serve this demand, but they can't. What a waste." The average analyst consensus price target sits at $48.11, approximately seven percent above the recent trading level near $42.50.

Custom Chip Unit Offers a Glimmer of Hope

One bright spot emerges from Intel's ASIC (Application-Specific Integrated Circuit) business. The custom chip segment expanded by over 50% in 2025, reaching an annualized revenue run rate exceeding $1 billion by year-end. In the fourth quarter alone, revenue grew by 26%, driven by demand for networking chips required for AI infrastructure.

Intel estimates the total addressable market for custom ASICs at $100 billion, positioning it as a relevant competitor in a space dominated by Broadcom and Marvell.

Conversely, the Foundry services division continues to be a significant drag, reporting a $10.3 billion loss in 2025. Meaningful revenue from external customers is not anticipated until late 2028. CEO Tan acknowledged the challenge, stating, "We are on a multi-year journey. It will require time and determination." The coming quarters will reveal whether Intel can successfully navigate this turn or if its transformation will prove more protracted than initially hoped.