Intel’s $600 million question: How the Kiryat Gat explosion hit its forecast
The company says the accident will cost about $300 million in fourth-quarter revenue and 200 basis points of gross margin and expects a similar revenue impact in the first quarter.
It took Lip-Bu Tan one sentence to describe what happened at Intel's plant in Kiryat Gat.
"Early this month, an unfortunate and tragic accident led to an extended shutdown in our Israel factory," Intel's CEO told investors on Thursday. He then moved on to server shipments.
It took his finance chief a number. "Our guidance includes an impact of roughly $300 million to revenue and 200 basis points to gross margin based on our early assessment of the incident at Fab 28," Dave Zinsner said.
The two statements were the first from the company on the explosion at the Israeli site that killed two workers.
The accident was the third item on a list. Tan named the headwinds limiting Intel's ability to meet demand for server chips: yields on its Intel 3 process, a shortage of advanced substrates, and Israel.
"While the teams have worked quickly to address the situation, it will impact our Q4 10-nanometer server shipments," he said. He did not mention the deaths, the injured worker or the cause.
Zinsner said the impact is concentrated. "Please note almost all of the $300 million impact from Fab 28 is related to 10-nanometer server products," he said.
Ben Reitzes, an analyst at Melius, asked what the impact would be after the fourth quarter.
Zinsner replied: "Well, on Israel, we've been shut down for about 2 weeks. We feel like we're going to be starting up production here by the end of this week. While we're doing that, we're trying to assess all the wafers that are in the line and what's usable and what's not usable from those materials."
He said the estimate was preliminary. "So this is somewhat of an early assessment, both really of 4Q and 1Q," he said. "But I think the current thinking is that we'll have about a $300 million impact to the fourth quarter. That's likely to be similar in the first quarter."
Most of the write-offs will come in the fourth quarter, he said: "We think most of the write-offs of wafers or scrapping of wafers is likely to all kind of happen in the fourth quarter." He added: "But just keep in mind, it's early." Intel, he said, would "of course update you as we go along."
Stacy Rasgon of Bernstein said Intel's 38% gross-margin guide "would have been 40% without the unfortunate situation in Israel." Zinsner did not contest that. He said the margin effect "is going to be really more of a Q4 event" and that he did not expect "a significant amount in Q1 in terms of scrapping."
Asked about next year, Zinsner credited the outage with holding back a strong run. "We feel like the momentum that we saw in data center this quarter, and taking away the impact from Israel, that momentum would have continued into the fourth quarter," he said.
The accident comes when Intel says it cannot make enough chips. "Despite our progress to increase capacity, demand for DCAI products continues to meaningfully exceed available supply," Zinsner said, adding: "We expect the industry to remain supply-constrained throughout 2027 and into 2028." DCAI is Intel's data center and AI unit.
