Germany urges Intel to increase spending on EUR17bn chip factory

If US chipmaker commits more investment, officials will consider increasing the subsidies for this landmark projectGermany is pushing Intel to expand its plans for a landmark €17bn chip plant in exchange for higher subsidies, in what is already set to be the country’s largest foreign direct investment since the second world war.

Berlin will provide US semiconductor company with EUR6.8bn to build its mega-fab or manufacturing facility in Magdeburg, a city in eastern Germany.

Sources close to the company claimed that Intel was seeking subsidies of at least EUR10bn. They cited higher construction and energy costs. German officials confirmed that they would increase financial support if the group increased its investment.

Sven Schulze said that it is logical to expect the amount of subsidies to increase if the size of the investment increases. Magdeburg, the state capital, is located in Saxony-Anhalt.

One German official said, “We need Intel that meets us halfway.”

Intel could be under financial pressure if it is required to invest more at a time when the company needs to save money. Recently, Intel announced that it would reduce capital expenditures this year following an unexpected drop in sales which forced it to cut its dividend.

Intel’s talks with the German government take place at a moment when the Biden Administration is showering chipmakers in hundreds of billions in subsidies in order to increase US manufacturing. This has put pressure on the EU, which is now under intense pressure to match these efforts or else risk losing investment to America.

German officials claim that Intel’s project is being funded under the European Chips Act. The Act aims to mobilize more than EUR43bn of public and private investment for the bloc’s semiconductor industry. However, the Act is still in negotiation. Brussels will need to confirm that the financial assistance offered complies with EU rules on state aid.

Intel announced last March that it would be building its Magdeburg Mega Fab using the most advanced chip fabrication technology. The mega fab is expected to be operational by 2028.

The company is trying to get back on top of the chip market after falling behind Asian competitors such as Taiwan Semiconductor Manufacturing Company. The plant was intended to be the centerpiece of a 10-year investment plan, which could total EUR80bn depending on demand and future subsidies.

This venture is crucial to EU ambitions of doubling its share in the global semiconductor industry from under 10 percent today to 20 percent by 2030. The venture is central to German chancellor Olaf Scholz’s strategy to reduce his country’s dependency on Asian suppliers of advanced chips required in everything from electric vehicles to smartphones.

Intel’s announcement that it would build the mega-fabrication facility has led to a dramatic increase in energy prices in Germany. This is due to Russia’s decision not to export gas to Europe following its invasion of Ukraine. The high inflation rate has also affected construction costs and prompted Intel to ask for more subsidies.

Both the German government and Intel declined to comment about any Berlin demands for a greater level of investment.

Intel stated that it shared the German Government’s goal of “building[a] more globally resilient supply chains by strengthening Europe’s capabilities in semiconductor manufacturing”.

Intel said that “since announcing plans to build the Magdeburg fab”, “disruptions of the global economy” have led to increased costs for everything from energy and construction materials. The company stated that it was committed to the project, and had signed an agreement to purchase land in November last year.

German Economy Minister said that discussions were underway within the German government to “close the planned project cost gap which has grown significantly over the last few months”.




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