(Image credit: Shutterstock)

Following the release of its latest earnings report, which revealed an unexpected uptick in profit margins, Intel has reportedly confirmed that the lift at least partially stemmed from selling would-be scrap chips for a profit. In an X post on April 24 (below), tech industry analyst Ben Bajarin said he had received clarity directly from Intel’s Investor relations team that customers are sweeping up "what may have been scrap or low-expectation output" CPUs, bringing in tangible revenue for the company.

Intel's first-quarter earnings, reported on April 23, came in significantly better than expected. Revenue came in at $13.6 billion against expectations of $12.36 billion, and Non-GAAP gross margins hit 41% — 650 basis points above the company's own guidance of 34.5%. Furthermore, the company’s earnings per share beat expectations by 3000%. Those enormous differences left analysts wondering what went right, and apparently, part of the answer lies in somewhat defective chips.

When chipmakers manufacture wafers, not all the chips that come off them are equal. The dies cut from the edges of a wafer tend to be lower quality, with more defects and lower performance than those cut from the center. If a chip doesn't meet the spec for a high-end SKU and is still usable, rather than binning it as scrap, Intel can relabel it as a lower-tier SKU and sell it at a lower price. It's still a sellable product, just not a premium one. Normally, some edge-die chips might not even make that cut.

According to Bajarin, Intel says the demand for CPUs is so strong that customers are buying everything — including those that would otherwise be scrap or low-expectation edge chips. Rather than throwing them away, Intel was able to "bin" them down — label them as a lower-spec SKU — and sell them anyway.

Intel Q1'26-Earnings (Image credit: Intel)

It is more nuanced than this, but, technically speaking, Intel made extra money selling 'scrap' that customers are now more willing to buy due to the chip shortage. The company got a surprise margin boost not from making better chips or cutting costs, but simply because demand is so voracious that chips it expected to underperform commercially are selling at usable prices. It's essentially found revenue.

This speaks volumes to the current CPU demand environment across the industry. An AI-driven infrastructure buildout is consuming compute capacity at a pace the supply chain was not designed for, creating a voracious appetite for server processors.

Intel’s Xeon CPUs, which power data center servers running AI workloads, have remained in sustained high demand with little sign of easing. That demand is being fuelled by major OEMs such as Dell, HP, and Lenovo, alongside hyperscalers including Microsoft, Google, and Amazon, all of which purchase Intel processors in massive volumes to build computers and expand data center infrastructure.

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