Intel and Germany reach deal on €30 billion chip fab

Chip maker Intel has finalised another multi-billion euro plan to build even more state-of-the-art factories in Europe.

The money hose is being turned on Magdeburg Germany, which will see Intel and its partners, including the German government, spend more than €30 billion over the coming years on two semiconductor plants – commonly referred to as ‘fabs’.

The plan is part of Intel’s €33 billion investment programme for Europe, launched in March 2022. It originally earmarked €17 billion for the new fabs in Germany, acquiring the land for them last November.

However, the plan stalled due to a disagreement over subsidies. Intel was reportedly offered subsidies totalling €6.8 billion from Germany via the EU’s Chips Act, the €43 billion plan to stimulate investment in the bloc’s semiconductor sector. Intel lobbied for more though – around €10 billion – citing rising energy and construction costs. But the German government refused to budge unless Intel agreed to also increase the amount it was willing to spend.

On Monday, Intel announced that a deal has been done, and that the total investment now weighs in at a whopping €30 billion. It didn’t divulge what proportion of that is subsidies.

Whatever the split may be, it represents a resounding albeit costly victory for the EU’s plan to boost chip production on the continent.

“Building the ‘Silicon Junction’ in Magdeburg is a critical part of our strategy for Intel’s growth. Combined with last week’s announcement of our investment in Wrocław, Poland, and the Ireland sites we already operate at scale, this creates a capacity corridor from wafers to complete packaged products that is unrivalled and a major step toward a balanced and resilient supply chain for Europe,” said Intel CEO Pat Gelsinger. “We’re grateful to the German federal government, Chancellor Olaf Scholz and the government of Saxony-Anhalt for their partnership and shared commitment to fulfilling the vision of a vibrant, sustainable, leading-edge semiconductor industry in Germany and the EU.”

The plan will create 7,000 construction jobs over the phase of the build, as well as approximately 3,000 permanent high-tech jobs at Intel once the factories are up and running.

“Today’s agreement is an important step for Germany as a high-tech production location – and for our resilience,” said German Chancellor Olaf Scholz. “Intel’s semiconductor production in Magdeburg is the single largest foreign direct investment in German history. With this investment, we are catching up technologically with the world’s best and expanding our own capacities for the ecosystem development and production of microchips. This is good news for Magdeburg, for Germany and for all of Europe.”

As Gelsinger mentioned, the deal with Germany comes a mere three days after Intel announced it will spend $4.6 billion on a new assembly and test facility in Wrocław, Poland, and only one day after Israel’s Prime Minister, Benjamin Netanyahu, revealed on his Telegram channel (in Hebrew) that Intel will plough 90 billion shekels ($24.95 billion) into his country. According to Reuters, the money will be spent on a new factory, due to be up and running in 2027.

Intel is also spending a fortune on its home turf in the US.

Last August, it agreed a deal with investment firm Brookfield to spend $30 billion on two new factories in the US.

The eye-watering sums of money involved with all these deals serves to highlight just how central the role of semiconductors has become to every facet of economic activity – and how expensive they are to produce at scale. That countries and banks are willing to fund these costly investments underscores how terrified everyone – from politicians and businesses, to end users – has become by the prospect of disruption to the semiconductor supply chain.

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