Intel is struggling to keep pace with soaring demand for its processors, with CEO Lip-Bu Tan revealing that the company is currently able to meet only about half of what customers are requesting.
“CPU demand is so high that we can only supply 50% of customers,” Tan said during a conversation with Cisco President Jeetu Patel at the Splunk conference in Denver.
The remarks provide a clear indication of the supply constraints Intel is facing as demand for computing infrastructure rises alongside the rapid expansion of artificial intelligence. Tan said several CEOs have been calling him to apologize because Intel has been unable to produce enough products to meet demand.
“Many CEOs are calling me apologizing for not being able to produce enough,” he said.
The shortage represents a significant shift for Intel, which has spent years dealing with manufacturing delays, strategic challenges and growing competition across the semiconductor industry. Under Tan, the company has been working to rebuild its product business and manufacturing capabilities while simplifying its organizational structure and improving execution.
Intel's second-quarter revenue increased 25% year over year to $16.1 billion, marking its strongest quarterly growth in 15 years. The company said demand for its products was outpacing its ability to increase supply.
Tan has increasingly pointed to the expansion of AI beyond model training as a new source of demand for CPUs. As inference and agent-based AI become more widespread, he expects demand for general-purpose computing to increase significantly.
“There are numerous agents, and in the future millions or trillions of agents will require resources,” he said. “Sufficient computing power and security are needed to respond to this.”
While the initial AI boom was largely driven by demand for GPUs used to train large models, Tan believes the growth of inference and agentic AI will create additional demand for CPUs and other general-purpose computing infrastructure.
However, meeting that demand requires more than simply increasing chip production. Tan said Intel's decision to remain in the manufacturing and foundry business is closely tied to the growing complexity of modern computing systems, where processors, memory, input/output components and other silicon need to work together.
“Not only design, but the ability to perform manufacturing and advanced packaging is very important. That’s why we are participating [in the foundry business],” Tan said.
He described semiconductor manufacturing as a highly complex business that requires careful management of yields, defects, cycle times and production variability to achieve predictable volumes.
Advanced packaging is becoming increasingly important as customers look to integrate different components into a single system.
“Everything is increasingly changing to a system approach and packaging, and this is the future,” Tan said.
Intel's manufacturing strategy also brings substantial financial and operational challenges. Tan said building the required manufacturing capabilities will require significant capital expenditure and disciplined execution. He identified substrates, which are critical components in advanced chip packaging, as one of Intel's major constraints.
“Japanese and Taiwanese companies are securing sufficient quantities through prepayment,” he said.
Tan also framed Intel’s foundry ambitions in strategic terms, arguing that dependence on a single supplier is becoming increasingly risky as computing systems grow more complex.
“Packaging that puts CPU, memory, I/O devices, and silicon together is not easy and requires a lot of technology,” he said. “Everything is increasingly changing to a system approach and packaging, and this is the future. That’s why I think relying 95% on one company, especially one based in Taiwan, is very dangerous.”
Intel's manufacturing strategy remains a key part of Tan's turnaround efforts. The company has moved forward with plans for high-volume production of its next-generation 14A process in 2028 after securing stronger customer demand. Intel's foundry business reported second-quarter revenue of $5.77 billion.
At the same time, Intel has been restructuring aggressively. The company had cut its number of vice presidents from about 450 at its peak to roughly 200 and reduced management layers from 12 to six, as Tan seeks to accelerate decision-making and improve execution.
The immediate challenge, however, is less about convincing customers to use Intel products than about producing enough of them.
“It’s not easy and you have to approach it very carefully and it requires a lot of capital expenditure,” Tan said. “The good news is that the situation has improved over the past 18 months.”
