Germany wins big as Intel spreads chip investment across six EU countries

Intel has picked Germany as the site for a huge new chipmaking complex, giving the first details of a $88 billion investment drive across Europe.

The U.S. chipmaker is spreading its investments around half a dozen countries, including boosting its existing factory in Ireland, setting up a design and research facility in France, and a packaging and assembly site in Italy.

The initial spending will total 33 billion euros ($36 billion), including 17 billion euros in Germany, where the auto industry is likely to be a prime customer for cutting-edge chips that could use technology as small as 2-nanometers.

Intel will build two factories in Magdeburg, Germany, creating 7,000 construction jobs, 3,000 permanent jobs at the company, and tens of thousands of additional jobs across suppliers and partners, it said.

Production in Magdeburg will attempt to produce chips smaller than 2 nanometers, something the company has yet to achieve.

French research hub

In France, Intel plans to build its new European research hub, creating 1,000 new high-tech jobs.

It is also in talks with Italy for a chip assembly and packaging plant expected to start operations between 2025 and 2027.

The company will invest an additional 12 billion euros in an Irish facility which will take its total investment in Ireland to more than 30 billion euros.

Intel will also increase its lab space in Poland and plans to establish joint labs with the Barcelona Supercomputing Center in Spain for advanced computing.

CEO Pat Gelsinger had announced plans in September to spend $88 billion in Europe over the next decade, and the choice of sites comes after some EU governments including Italy offered big incentives to try and woo the chipmaker to invest in their countries.

Spreading its factories around different locations could help the company get more subsidies from different countries.

But Intel will have to negotiate with each European country where it's locating facilities for state aid, European Industry Commissioner Thierry Breton told journalists.

He also said the Commission was talking with other chipmakers and hoping to make similar announcements in the coming months, but did not provide details.

Intel's plan is the latest big investment announcement by a major semiconductor maker as the industry tries to catch up with a boom in demand for chips used in everything from smartphones to cars, though there will be no quick fix as the new German plants will not come online until 2027.

Volkswagen highlighted the pain caused by chip shortages on Tuesday, saying it sold 2 million fewer cars than planned last year due to the issue.

Intel's announcement comes after the European Commission last month set out plans to encourage chip manufacturing in the European Union, with proposed new legislation to ease state aid rules for chip factories and enable $17 billion in additional public and private investment.

During the 1990s, the EU accounted for nearly 20 percent of the world’s silicon wafer production, according to figures cited by Brussels. Now it has fallen to about 10 percent.

The EU has now set itself the ambitious goal of making 20 percent of the world’s chip supply by 2030 -- quadrupling its production.

'Begging for money'

Chipmakers are looking to build more factories to make advanced chips for use in premium smartphones like Apple's latest iPhones that use chips with 5-nanometer technology. A nanometer is just several atoms wide.

Bernstein Research analyst Stacy Rasgon was confident Intel could manage the roll out of investments to match demand going forward, and was positive on expanding with government subsidies.

Intel "is using capacity as a strategic weapon. Part of the strategy right now is to go around the world and beg for money," Rasgon said. "If there's any time to run around the world begging for money to build semiconductor manufacturing facilities now is the time."

Intel did not specify how much money it is receiving from EU governments to expand into their countries.

U.S. expansion

Intel has already committed to increase spending on new U.S. factories at an existing site in Arizona and new location in Ohio.

Gelsinger has called on governments to recognize the security risks of the concentration of production in Asia.

His vision for Intel in the future is of a company that manufactures semiconductors for other companies, even rivals, and that does it with the best production technology. By committing to Europe and Germany, Intel can speed up the acquisition of new customers.

"Today 80 percent of chips are produced in Asia," Gelsinger said. "Our pan European investment addresses the global need for a more balanced and resilient supply chain. We are planning to bring the most advanced technology to Europe and helping EU create the a next-generation European chip ecosystem."

Bloomberg contributed to this report