Chip industry – Intel postpones start of construction of chip factory in Magdeburg – Economy

Santa Clara/Magdeburg (dpa) – Intel is postponing the start of construction of its 30 billion euro chip factory in Magdeburg. CEO Pat Gelsinger announced a delay of around two years – but made it clear that this was only an estimate based on expected demand. A debate immediately began in the federal government about how the planned billions in subsidies could now be used.

Groundbreaking expected this year

Intel had announced the construction of two chip factories in Saxony-Anhalt. This would create around 3,000 jobs. The groundbreaking ceremony was planned for this year. Last year, the German government promised state aid of 9.9 billion euros for the settlement. However, the EU Commission’s approval for this is still pending.

Just a few months ago, Gelsinger said that the most modern production processes would be used in Magdeburg so that Intel could catch up with its successful competitors. But the company is struggling with financial problems – and has been forced to make cuts somewhere.

In this balancing act, the home market won: Gelsinger confirmed the investments in the US states of Ohio, Arizona, Oregon and New Mexico – and announced a two-year halt to the plans in Poland as well.

What to do with the billions in subsidies?

For the federal government, which has a funding gap in its budget, the question now arises as to what to do with the billions earmarked for Intel. “All funds not needed for Intel must be reserved in the federal budget to reduce open financial issues,” wrote Finance Minister Christian Lindner on the online platform X. “Anything else would not be responsible politics,” argued the FDP chairman.

Federal Minister of Economics Robert Habeck (Greens) countered: “We will now discuss together how we can use unused funds sensibly and carefully and use them for the good of the country.” The ministry said that the money was earmarked for the Climate and Transformation Fund, known as the KTF, and was not available for the core budget. There is also a billion-dollar gap in the fund.

The budget makers in the Bundestag are examining where the federal government’s budget proposal needs to be changed – and how the 12 billion euro gap can be reduced.

Intel must first gain the curve

Saxony-Anhalt’s Prime Minister Reiner Haseloff (CDU) spoke to Gelsinger on the phone. Economics Minister Sven Schulze (CDU) is still hoping for the company to settle here. “Intel is sticking to the project, albeit with a delay.” This is important news for all of us,” he told the German Press Agency.

However, this is only possible if Intel does well enough to make further investments worth billions over the next two years. The once dominant industry pioneer is now left out of the most lucrative semiconductor deals.

Smartphone chips from Apple, Qualcomm and Google are developed based on technology from the British chip designer Arm. The graphics card specialist Nvidia dominates chips for AI software such as ChatGPT. And all of these high-tech semiconductors are produced mainly in Taiwan by the contract manufacturer TSMC.

Magdeburg is part of an expensive Intel rescue plan

Intel still has the business with some chips for data centers and Windows PCs – but here too Qualcomm recently attacked with Arm processors. The former market leader is currently struggling with problems with new chip generations.

Gelsinger, who returned to Intel in early 2021 as a turnaround manager, has an ambitious – and expensive – rescue plan. He not only wants to successfully develop his own chips, but also become so good at manufacturing that other companies choose Intel as a contract manufacturer. To do this, the factories will be outsourced to an independent unit within the group.

And several new factories are to be built – with high government subsidies. Gelsinger relied on the fear of chip shortages due to a conflict over Taiwan. Without TSMC’s deliveries, hardly anything would happen in the West very quickly, experts warn. The semiconductor shortage in the Corona crisis would seem harmless in comparison.

The alternative: factories in the USA and Europe. That costs billions and takes years. But if it were possible to bring around half of the production of cutting-edge chips to the West by the end of this decade, a lot would have been achieved in terms of security of supply, Gelsinger said in February. A side effect: Intel would be more firmly anchored in the Western chip supply chains. Magdeburg is part of these plans.

AI chip for Amazon

But even if the federal government contributes 10 billion euros to Magdeburg, the remaining 20 billion still needs to be raised. And Intel has to save money. In the last quarter alone, the company incurred a loss of billions – and analysts expect further losses. At the beginning of August, Gelsinger announced the elimination of around 15,000 jobs. That’s around 15 percent of the workforce. In total, he will save more than ten billion dollars by next year.

In the US, where Intel also receives billions in subsidies, Gelsinger was able to simultaneously record a success for his contract manufacturing strategy. Intel will co-develop and manufacture an AI chip for Amazon’s cloud division, he announced.

© dpa-infocom, dpa:240917-930-234509/1