Intel has drastically scaled up its plans for major new plants in Germany, after it successfully squeezed billions of euros in extra subsidies from the government there.
The U.S. chip giant currently has one major manufacturing facility in Europe—its nearly 35-year-old campus in Leixlip, Ireland. Just over a year ago, it announced it would build two more fabs in the German city of Magdeburg. This was to cost around €17 billion ($18.6 billion), with around €6.8 billion coming from government subsidies. Intel bought the land it needed for this “Silicon Junction” scheme in November.
However, with the tech sector facing soaring energy costs and plummeting stock prices, Intel hit the brakes at the start of this year. It wanted more state aid, and now it has it: Berlin will cough up €9.9 billion. Intel’s promised investment has also gone up to more than €30 billion.
This arrangement—very much a product of its time—should work out as a win-win for most players.
Like the U.S., Europe wants to become far less reliant on China for semiconductor production. With the U.S. successfully spraying around subsidies to attract investment, the European Commission introduced its own Chips Act a couple months ago and has also been taking a more relaxed approach to state aid—subsidies of this scale are usually frowned upon because only richer EU countries can afford them, leaving poorer EU states as the losers. Intel’s increased investment in Magdeburg will be seen as a vindication of that approach, and it would be a surprise to see the Commission, which has yet to clear the deal, take issue with Germany’s massive outlay here.
For Intel CEO Pat Gelsinger, Europe is clearly proving key to his company’s desperate need for growth, as it struggles for relevance in a chipmaking world that’s dominated by Samsung, TSMC, and increasingly Nvidia. The Magdeburg plants will make Intel chips, but will also serve as foundries for the contract customers that Gelsinger has been courting. Intel just announced as well the development of an “up to $4.6 billion” assembly and test facility near Wrocław, Poland, which is around a five-hour drive from Magdeburg.
The Magdeburg deal is Germany’s biggest-ever foreign direct investment, but the idea of boosting Intel’s subsidies was a controversial one, with an equally controversial fix. German Finance Minister Christian Lindner was against any increase, insisting that the federal budget was stretched enough. In the end, the money ended up coming from Germany’s energy and climate fund, prompting the neighboring state of Saxony to immediately demand more support for its own renewables sector. “What’s possible for Intel must also be possible for our solar industry,” grumbled Saxony climate minister Wolfram Günther.
Some see the scale of the subsidies as scandalous. Sonja Álvarez, a commentator with business publication WirtschaftsWoche, pointed out that Intel is also investing $25 billion in a new Israeli plant (Israel’s biggest-ever foreign investment, according to Prime Minister Benjamin Netanyahu) but would only be getting $3.2 billion from the Israeli state—evidence, she wrote, of Israel boasting better digital infrastructure and startup ecosystems.
“Not only did [Chancellor Olaf Scholz and Economy Minister Robert Habeck] allow themselves to be blackmailed, but they are apparently not sufficiently convinced of the attractiveness of the location themselves and have therefore resorted to expensive lures,” Álvarez wrote.
Either way, Intel’s Magdeburg plant should be operational around five years from now—its benefits can be weighed against the costs then.
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David Meyer
Data Sheet’s daily news section was written and curated by Andrea Guzman.
