Intel pauses chip factory in Magdeburg, plant in Wroclaw

Contents

Intel is pausing work on its planned chip factories in Magdeburg (Saxony-Anhalt) and a packaging plant in Wroclaw (Lower Silesia). Intel CEO Pat Gelsinger announced this to the workforce on Monday after a meeting with Intel's Board of Directors. "We have recently expanded our capacity in Europe through our fab in Ireland, which will remain our leading European hub for the foreseeable future," Gelsinger wrote, "We will pause our projects in Poland and Germany for approximately two years based on expected market demand." Until yesterday, Magdeburg was to be Intel's largest investment in Europe.

This decision is one of many that should lead to more efficiency, better competitiveness and ultimately better financial results. In the second quarter, Intel suffered an operating loss of almost two billion US dollars. The operating cash flow of just over one billion dollars was nowhere near enough to finance the investments in new facilities of around twelve billion. Intel has profound problems, which has led to turmoil in the Board of Directors. Intel has also made significant job cuts, and not just once, including substantial severance payments for factory engineers. For the time being, the company is not paying a dividend in order to keep money in its coffers.

Investors are impressed

According to reports, work on a planned fab in Israel was paused months ago. A packaging plant in Italy, which was supposed to "package" the chips from Magdeburg, has also been put on the back burner. In a packaging plant, silicon chips are married to their carriers. The typical green carriers – so-called substrates – serve as a bridge between the semiconductor component and the circuit board: they provide the contact surfaces with which a notebook manufacturer, for example, can solder a processor to the mainboard. Simple chips were to be packaged in Wroclaw; complex "advanced packaging" with several chiplets on one carrier was not planned there, but was envisaged for Italy.

An Intel factory for advanced packaging already under construction in Malaysia is to be completed in principle, but apparently more slowly. In the USA, where subsidies have been particularly high recently, Intel is not planning to cut back on planned new plants, according to Gelsinger. Meanwhile, the contract manufacturing division (Intel Foundry) is to become an independent subsidiary. This internal split is intended to optimize the capital structure, help tap independent sources of money and thus lead to maximum growth and shareholder value. Investors like it: Intel shares gained more than six percent on Monday, with a further eight percent added after the close of trading.

Higher German subsidy not enough for now

Intel only obtained approval for the first ground work in Magdeburg in July. The construction freeze is not only bad news for the economy of Saxony-Anhalt and Lower Silesia, but could also put the brakes on German politicians' interest in supporting chip factories as such. This in turn would undermine the strategic interests of the European Union. The aim of the European Chips Act passed last year is to double Europe's market share in the global production of computer chips to twenty percent; at the same time, production processes are to be made more environmentally friendly and well-paid jobs are to be created. However, Europe is in competition with other locations, which are also offering billions in subsidies.

At the same time, construction and energy costs in Europe have risen significantly. Intel originally wanted to invest 17 billion euros in Magdeburg, plus 6.8 billion euros in subsidies, in order to be able to start production at the end of 2027. It would be the largest foreign investment in Germany, at least since the Second World War. However, the expected costs soon exceeded 30 billion euros, meaning that the public sector had to increase the subsidy to 9.9 billion euros. Even that is not enough to secure the start of production before 2030, as is now becoming apparent.

County Kildare ahead of Saxony-Anhalt after all

This is initially bad news for the construction industry and the general economy in the region. However, there is also a silver lining on the horizon: the promising 18A manufacturing process should be fully developed by the time the two fabs in Magdeburg are completed.

What is not so good news for Germany is that Intel is now focusing more strongly on County Kildare in Ireland. Apollo, an investor there, is supporting Intel with billions of dollars in return for a later share of sales. At least Saxony-Anhalt has a plan B in the drawer in case Intel does not build its fabs in Magdeburg after all – this no longer seems quite as unrealistic as we suspected just a few weeks ago. Since then, Intel's situation has deteriorated considerably.

(ds)