Intel on Tuesday selected the German city of Magdeburg as its next major chip manufacturing plant, continuing a dramatic expansion aimed at reducing reliance on Asian factories to make vital components.
The Silicon Valley company said it expects to build at least two semiconductor manufacturing plants, worth about 17 billion euros and about $19 billion, in the eastern German city, in line with a plan announced in late January to begin production in Ohio for the first time. Intel said that, like Ohio, the Magdeburg plant, along with other investments in France, Ireland, Italy, Poland and Spain, could receive funding of about $90 billion over ten years to build additional plants.
The German site is expected to employ about 3,000 permanent employees, as well as 7,000 construction workers.
The move by Intel is the latest response to an ongoing semiconductor shortage, initially caused by the pandemic, which has hampered automakers and others in Europe and the United States. The supply chain crisis has highlighted customer dependency on chip makers in Taiwan and South Korea, especially for the most advanced products.
Patrick Gelsinger, who became Intel’s CEO a year ago, has set a goal of trying to raise the US share of global chip production to about 30 percent over the next decade, up from 12 percent today. He also said he wants to increase Europe’s share to around 20 percent from 9 percent over the same period.
Understanding the Supply Chain Crisis
“This ambitious initiative will drive innovation in research and development in Europe and bring cutting-edge manufacturing to the region for the benefit of our customers and partners around the world,” Mr. Gelsinger said in a statement. “We aim to play an important role in shaping Europe’s digital future for decades to come.”
The announcement will be welcome news for European Union politicians, who recently announced a plan that would see around $17 billion in public and private investment in the chip sector by 2030. This proposal will add about $34 billion to the already planned public investment.
In the United States, Mr. Gelsinger received an invitation to deliver President Biden’s State of the Union address following the Ohio investment announcement. In Congress, lawmakers are debating a package that includes $52 billion in stimulus for the semiconductor industry, passed by the House of Representatives in early February after the Senate approved a version last June. The two versions must be agreed upon in negotiations between the two houses of Congress.
Mr. Gelsinger argued that government subsidies are critical to bringing the cost of building new factories in line with the cost of opening factories in Asia. He lobbied officials in the US and Europe for parallel subsidy packages that could include grants to set up new chip factories, saying government support could determine how far and how fast Intel expands in both regions.
At the same time, Mr. Gelsinger and other Intel officials held talks with officials from at least seven European countries about a possible new site. Intel now has factories in Ireland and Israel, as well as in Arizona, Oregon and New Mexico.
Germany seemed like a strong candidate, in part because of the concentration of automakers, which have become key customers for chip makers. Mr. Gelsinger spoke at the Munich Auto Show in September, talking about Intel Mobileye’s driver-assistance technology and posting a photo of her banging fists with then-Chancellor Angela Merkel.
How the supply chain crisis unfolded
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The pandemic has created a problem. The highly complex and interconnected global supply chain is in a state of turmoil. Much of the crisis has been linked to the Covid-19 outbreak, which has caused an economic downturn, massive layoffs and production shutdowns. Here’s what happened next:
Delivery reduction. With fewer goods being produced and fewer people on the payroll at the start of the pandemic, manufacturers and shipping companies assumed demand would plummet. But this turned out to be a mistake, as the demand for some goods skyrocketed.
The demand for protective gear has grown. At the start of 2020, the entire planet suddenly needed surgical masks and gowns. Most of these products were made in China. As Chinese factories ramped up production, cargo ships began delivering gear around the world.
Then there is the shortage of shipping containers. Shipping containers piled up in many parts of the world after they were emptied. The result was a shortage of containers in the one country that needed them most: China, where factories began pumping out goods at record levels.
Increased demand for durable goods. The pandemic has shifted American spending away from eating out and attending events to office furniture, electronics and kitchen appliances, which were mostly purchased online. Spending was also encouraged by government stimulus programs.
Strained supply chains. Factory goods quickly overflowed US ports. Growing orders have further exceeded the availability of shipping containers, and the cost of shipping a container from Shanghai to Los Angeles has skyrocketed tenfold.
The country is no stranger to chip production. One of the main manufacturing centers is Dresden, where Infineon, GlobalFoundries and Bosch operate semiconductor factories. Magdeburg in Saxony-Anhalt is about 150 miles northwest of Dresden and 100 miles west of Berlin.
“The two Intel semiconductor factories in Magdeburg are an important and strong boost to the economy in difficult times and a central leap for European digital sovereignty,” said Robert Habeck, German Economy Minister.
In addition to the German plant, Intel said it will spend another 12 billion euros to double its manufacturing space in Leixlip, a city west of Dublin. In Italy, the company said it had entered into negotiations to build a manufacturing facility with a potential investment of €4.5 billion and approximately 1,500 jobs.
In France, Intel said it would build a new research and development center, creating 1,000 new jobs. In Poland, Intel is expanding laboratory space.
Intel said it has been operating in the European Union for 30 years and currently employs about 10,000 people in 27 countries.