Nothing is Wasted: Intel Makes Money Even with the Worst Processors

Intel is currently experiencing a phase of strong demand on the CPU front, driven by the expansion of AI infrastructure and the increasing use of "agentic" inference systems. The company has reported quarterly results that exceeded expectations, but part of the margin improvement comes from an unexpected factor: the monetization of chips that would previously have been considered waste.

In the first fiscal quarter, Intel reported revenues of $13.6 billion, against an estimate of $12.36 billion, and a non-GAAP gross margin of 41%, significantly above the internal guidance of 34.5%.

According to what was clarified on the sidelines of communications with investors and reported by analyst Ben Bajarin (Creative Strategies), a significant component of this result comes from the sale of CPUs that would normally be classified as low quality or potentially unusable.

In the wafer manufacturing process, not all dies present the same characteristics: those taken from the central areas generally perform better, while those at the edges of the wafer may have defects or lower performance. Under normal conditions, the latter are usually allocated to lower-tier SKUs or discarded if they do not meet minimum standards.

However, the current market situation has changed dramatically. The strong demand for computing capacity for AI applications, especially in data centers and inference systems, has increased demand so much that Intel has adopted a less selective selection process (also referred to as binning) to "reclassify" the dies typically discarded into sellable products at lower costs, which are still in demand by operators.

This does not mean that the sold CPUs have "invalidating" defects, but they likely have non-critical functional units for certain sectors or less margin to increase clock speed. Intel has decided to employ them in dedicated SKUs that manufacturers still choose to select in light of the current market climate.

The result is a form of additional revenue that is not related to a direct improvement in production performance or a reduction in costs. Essentially, components that would have remained unsold or eliminated in other cycles are now contributing significantly to revenue.

This phenomenon is not exclusive to Intel, however; other semiconductor manufacturers, such as AMD, which relies on TSMC's production, can apply similar die segmentation strategies, adapting lower-performing chips to lower-tier products. And it is not already said that they do not already do so, indeed.