The chip manufacturer is thus starting the first phase of a massive investment program in Europe. Plants for a total of 33 billion euros are planned in Germany, Ireland and Italy. New locations are also to be built in Poland and Spain. In total, Intel intends to invest up to 80 billion euros along the entire semiconductor value chain in the EU over the next ten years – from research and development (R&D) to production and packaging, i.e. installing the chips in a housing including the wiring the electrical connections.
Intel CEO Pat Gelsinger described Magdeburg as the ideal location. The city had prevailed against Dresden and Bavaria. “The investments we are planning are an important step for both Intel and the EU,” said Gelsinger. “The ‘EU Chips Act’ enables the private sector and the public sector to work together to significantly strengthen Europe’s position in the semiconductor sector.”
Intel had already announced last year that it wanted to invest massively in its European semiconductor production. Construction of the facilities in Magdeburg is scheduled to start in spring 2023. However, those involved do not expect production to start until 2027. It is therefore clear that the current chip bottlenecks, which are affecting numerous sectors, especially the automotive industry, will not be resolved anytime soon.
Production outages in Asia, slumps in demand at the beginning of the corona pandemic and disrupted supply chains had thrown the global semiconductor supply chain into difficulties in the past two years. When demand picked up again, the demand for microprocessors could no longer be adequately met. Because special chips were not available, car manufacturers, for example, had to shut down entire production lines.
Politicians are trying to counteract this. As part of the “European Chips Act”, which was launched on February 8th of this year, the European Commission intends to invest 43 billion euros in the promotion of semiconductor production. The goal: The EU market share in global semiconductor production is to double to around 20 percent by 2030. Around eleven billion euros are to flow into research. The remaining billions are to be used as aid for the settlement of chip companies – also from the USA.
These subsidies are likely to have been an important incentive for Intel to step up its commitment in Europe. “The German federal government plans to support the Intel investment project in Magdeburg under the subsidy rules of the European Chips Act,” says a statement from the Federal Ministry for Economic Affairs and Climate Protection (BMWK). However, it is not yet clear how much money will actually flow. The prerequisite for this is that the EU Commission approves the aid and the budget legislator provides the BMWK with appropriate funds, according to the ministry.
Intel dreams of the golden age of semiconductors
Federal Minister of Economics Robert Habeck speaks of a great success. “Two Intel semiconductor factories in Magdeburg are an important and strong stimulus for the economy in difficult times and a central leap for Europe’s digital sovereignty,” said the Green politician. The federal government accompanied the settlement process closely with the state of Saxony-Anhalt. The German location prevailed in Intel’s Europe-wide selection process. “This shows that Germany is attractive for innovations and investments,” says Habeck.
The politicians in Saxony-Anhalt are hoping for a growth spurt and numerous jobs with the settlement of Intel’s chip factories. In addition to many thousands of jobs for the construction of the plants, about 3000 high-tech jobs are to be created in Magdeburg in the long term. Everyone involved hopes that many more thousands of jobs could be created along the value chain in the partner ecosystem related to semiconductor production.
“Our federal state and the city of Magdeburg are very happy about Intel’s commitment to us,” said Reiner Haseloff, Prime Minister of Saxony-Anhalt. “It will be the largest investment in the history of Saxony-Anhalt. Such a huge investment and many thousands of new jobs are a quantum leap for our state.” The CDU politician was pleased that the project was also a milestone for the eastern German economic area and a success for all of Germany.
There’s a lot at stake for Intel, too. Strategic mistakes in recent years and delays in the production of innovative products have scratched the image of the industry leader. Competitor AMD has caught up, especially in the so important, because high-margin business with server CPUs, and the large contract manufacturers from the Far East are now ahead in terms of semiconductor production technology.
Gelsinger, who has been at the helm at Intel since early 2021, must first make Intel’s chip production competitive. The manager does not do things by halves. Only at the end of January did he announce that he wanted to invest 20 billion dollars in the construction of new plants in the US state of Ohio. Now follows the announcement of billions in investments in Europe.
Intel urgently needs the additional manufacturing capacity to implement its product strategy. It’s no longer just about classic PC and server CPUs. The increasing demand for AI applications requires new graphic processing units (GPUs) that are better designed to process the necessary arithmetic operations. In addition, many industries require special chips for their increasingly intelligently designed products. This ranges from the smart home with networked household appliances to the automobile, which is increasingly developing into a computer on four wheels.
Intel has announced new products for all of these areas. In addition, the group wants to use its Intel Foundry Services (IFS) to position itself more as a contract manufacturer. For example, Intel has set up a team to offer car manufacturers various complete solutions. Intel is also spending a lot of money on its IFS division. In mid-February, it was announced that Tower Semiconductor would be acquired for $5.4 billion. The company operates several plants in Israel, Italy, Japan and the USA and specializes in analog chips used in the automotive, mobile communications, medical and aerospace industries.
The management consultants from McKinsey agree with Intel boss Gelsinger with his strong expansion course: “The industry is facing a decade of growth and can become a trillion-dollar industry by 2030,” is their prophecy. The industry’s sales will have reached $600 billion worldwide in 2021 and could grow by six to eight percent annually during this decade break through a trillion dollars in 2030.
However, competitive pressure remains high. Competitor AMD recently acquired Xilinx, a supplier of programmable logic chips used in 5G base stations, autonomously driving cars, AI accelerators and in space travel, for $35 billion. In addition, the prospect of billions in aid from the EU is also attracting competitors. Semiconductor manufacturers such as TSMC and Global Foundries have announced that they also want to put out feelers in the direction of Europe.
In general, the chip industry is currently investing a lot of money in production and development capacities. Samsung plans to invest more than $200 billion in new manufacturing facilities in the coming years. 17 billion dollars are specifically planned for a plant in Texas. Contract manufacturer TSMC plans to invest around 100 billion dollars in building new semiconductor factories. A $12 billion facility is currently under construction in Arizona. The US government also wants to subsidize semiconductor production in the United States. There is currently talk of more than 50 billion dollars, the release of which, however, still depends on the divided chambers in Congress and Senate.
But with the current announcement, Intel has the edge in Europe for the time being. In addition to the billions for Magdeburg, the group also plans to further expand the production site in Leixlip (Ireland) and invest an additional twelve billion euros for this. This doubles the production area on the Emerald Isle. In addition, negotiations are currently underway with Italy about the construction of a production plant with a financial volume of up to 4.5 billion euros.
According to those responsible for Intel, Europe has excellent universities, research institutes, leading chip designers and suppliers. The support of this innovation cluster through additional investments in research and development and the connection with the state-of-the-art manufacturing planned by Intel will significantly accelerate the momentum of innovation in Europe and strengthen supply chains across Europe. Gelsinger’s message is clear: “Intel wants to play a major role in shaping Europe’s digital future in the coming decades.”