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March 15, 2022updated 24 Nov 2022 3:24pm

Intel announces new European factory as part of €80bn chip investment

Intel's €80bn investment in research and manufacturing may not be enough to meet Europe's needs.

By Matthew Gooding

Intel today announced it is investing up to €80bn in chip manufacturing across Europe, including the construction of a new €17bn “megafab” production plant in Germany for high-end chips. Though this represents a significant boost to Europe’s semiconductor capabilities, the chips produced in the new plant may not match the needs of Europe’s businesses, which have struggled to source vital components during the global chip shortage.

Planned for Magdeburg in Germany, the new Intel European factory, dubbed a “mega fab” due to its planned scale, should be up and running by 2027, Intel CEO Pat Gelsinger said at a news conference on Tuesday afternoon.

Intel European factory
Intel CEO Pat Gelsinger announced plans for a new production facility in Germany today Photo by David Paul Morris/Bloomberg via Getty Images

It will produce chips on a two nanometre (nm) process node – a miniaturisation, which should deliver improved performance and efficiency compared to the current devices on the market.

The plant will cost an estimated €17bn, and Intel will also spend up to €63bn on research and development across Ireland, Italy, Poland and Spain.

“Our planned investments are a major step both for Intel and for Europe,” Gelsinger said. “The EU Chips Act will empower private companies and governments to work together to drastically advance Europe’s position in the semiconductor sector.

“This broad initiative will boost Europe’s R&D innovation and bring leading-edge manufacturing to the region for the benefit of our customers and partners around the world. We are committed to playing an essential role in shaping Europe’s digital future for decades to come.”

While the news will be welcomed by political leaders keen to boost Europe’s digital sovereignty and decrease reliance on Asian chip manufacturers, businesses may be left disappointed.

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Why is Intel investing in Europe?

Once the undisputed leader in semiconductor R&D, Intel has been beset by problems in recent years, with the company experiencing multiple delays bringing new process nodes online.

This led to a shake-up at the top of the business, with Intel stalwart Gelsinger brought back from VMWare in 2021 to take up the role of CEO. An engineer by background, he has introduced a new focus on R&D and a strategy dubbed IDM 2.0, which will see Intel going into the foundry business, manufacturing chips for other companies rather than just for its own use.

The foundry market is currently dominated by two companies – Taiwan’s TSMC, the market leader, and South Korea’s Samsung, both of which are capable of manufacturing chips on processes more advanced than those made by Intel. Indeed Intel has been forced to use TSMC to manufacture some of its newest GPUs, which require a 6nm process, and will also take advantage of TSMC’s 3nm process when it comes online later this year. Though Intel hopes to have its 2nm plant in Germany up and running by 2027, TSMC expects to be offering the technology to customers by 2025.

Intel has been investing heavily to try and narrow the technology gap with TSMC and grab a slice of the contract manufacturing market, backed by the US government which is keen to reduce its reliance on chips produced in Asia. It is building a $20bn chip foundry in Ohio in the US, and could eventually spend up to $100bn on the site to make it the world's largest chip manufacturing facility. This is in addition to new facilities in Arizona, announced last year. It also announced the purchase of Israeli manufacturing business Tower Semiconductor last month.

As well as manufacturing, Intel has been splashing the cash on research. Its 2021 financial results reveal it spent $15.19bn on R&D last year, a 12% increase compared to 2020. This easily outstrips TSMC's last reported R&D spend, $3.92bn in 2020.

An investment in Europe also makes sense given the anticipated increase in demand for leading-edge chips across the continent. A study from Kearney predicts that by 2030, European spending on semiconductors will reach €80bn, with 43% of that committed to advanced process nodes. This compares to total spending of €44bn in 2020, only 19% of which went on leading-edge chips.

What does new Intel European factory mean for businesses?

Intel's announcement comes shortly after the EU revealed details of its long-awaited European Chips Act, which is aimed at stimulating the semiconductor industry across the continent. It also aims to mitigate the effects of the global chip shortage, which has left many European businesses short of vital components.

Europe's share of the chip manufacturing market has been declining for decades, and the act aims to double it to 20% in the next decade.

The Act commits up to €43bn to fund semiconductor development, with €11bn of this coming from EU funds, and the rest to be sourced from individual member states and the private sector.

It will allocate money to domestic R&D projects, and ease state aid rules allowing member states to offer subsidies to global chip makers like Intel looking to set up on the continent. It is unknown at this stage what sort of subsidies Intel has been promised by the EU or its member states, but it had previously been reported Gelsinger was demanding an incentive package worth up to €10bn.

In the short term, a new Intel European factory is unlikely to be helpful for businesses looking for a more reliable supply of chips in the face of ongoing shortages, argues Gartner vice president analyst Alan Priestley. "What's creating the issue is the older process nodes," Priestly told Tech Monitor last month. "The older fabs are out of capacity, and these make a lot of the smaller chips that are necessary to use the high-performance chips and build the products we want to consume."

Read more: Here are the numbers that explain Intel's decline

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