The growing demand for artificial intelligence (AI) infrastructure has increased the pressure on semiconductor companies to produce more powerful processors for data centres. Intel is among the companies trying to expand its supply to meet this demand, but an accident at one of its manufacturing facilities in Israel has disrupted production and added another challenge to its efforts.
The chipmaker expects the explosion at its Kiryat Gat factory in Israel to cost approximately $600 million in lost revenue across the fourth quarter of 2026 and first quarter of 2027. The disruption is also expected to affect its supply of server processors to cloud customers as Intel continues to struggle with manufacturing capacity constraints.
What Happened at Intel’s Israel Factory?
An explosion occurred in mid-October at Intel’s Fab 28 manufacturing facility in Kiryat Gat, southern Israel, killing two workers and seriously injuring another, according to reports.
Following the accident, Intel suspended manufacturing operations at the facility for approximately two weeks.
The factory is, no doubt, an important part of the company’s production network, as it manufactures processors using its 10-nanometre technology, including server chips used in data centres.
During Intel’s third-quarter earnings call on October 29, CEO Lip-Bu Tan described the incident as a tragic accident and confirmed that it had affected the company’s ability to meet server processor demand.
Chief Financial Officer David Zinsner subsequently explained that the factory shutdown would reduce Intel’s fourth-quarter revenue by approximately $300 million. He also expects a similar impact in the first quarter of 2027, bringing the projected revenue shortfall to about $600 million.
How the Explosion Will Affect Intel’s Chip Production
The disruption comes at a time when Intel is already struggling to produce enough processors to meet demand from data centre customers.
According to Zinsner, almost all of the estimated $300 million fourth-quarter revenue impact is connected to server products manufactured using the company’s 10-nanometre process at Fab 28.
The shutdown also affected semiconductor wafers that were already undergoing production when the explosion occurred. Intel is assessing which of these materials can still be used and which will have to be discarded.
This process will help determine the extent of the production losses and the additional costs associated with the incident. Zinsner said while Intel was preparing to restart production by the end of October, the company had not completed its assessment of the affected materials.
The company also expects the disruption to reduce its fourth-quarter gross margin forecast by approximately 200 basis points, reflecting the financial pressure from lower production and the factory shutdown.
Intel’s Manufacturing Constraints Continue to Affect Supply
The factory incident adds to existing production challenges at Intel as demand for its data centre processors continues to exceed available supply.
During its third-quarter earnings call, Zinsner said demand for the company’s data centre and AI products remained significantly higher than the supply it could provide. He also indicated that supply constraints across the semiconductor industry could continue through 2027 and even into 2028.
Intel reported third-quarter revenue of $16.51 billion, representing a 21% increase from the same period last year. However, the company forecast fourth-quarter revenue of between $15 billion and $16 billion, which is below analysts’ expectations of $17.07 billion, according to LSEG data.
Beyond the factory disruption, Intel is also dealing with weaker demand in the personal computer market and rising memory prices. These pressures have affected its financial outlook as the company continues investing in manufacturing capacity.
For now, Intel is working to restore production at its Israeli facility and determine how much of the affected output can be recovered. The final financial impact will depend on the extent of the production losses, the recovery process, and the company’s ability to address supply shortages across its manufacturing network.
