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Germany, Intel sign deal for chip factory in Magdeburg

June 19, 2023

The German government will subsidize the US tech firm's plans to construct computer chip and semiconductor facilities in Magdeburg. European supply chain security has come into sharp focus, partly as a result of COVID.

An Intel processor chip propped on a table
Intel says the new project is set to create around 3,000 jobs in the eastern German city of Magdeburg Image: Mustafa Ciftci /AA/picture alliance

German Chancellor Olaf Scholz and Intel CEO Pat Gelsinger on Monday signed an accord paving the way to build a pair of semiconductor facilities in the city of Magdeburg in the eastern state of Saxony-Anhalt.

Scholz called Intel's investment in the facilities the biggest direct foreign investment in German history.

"Today’s agreement is an important step for Germany as a high-tech production location — and for our resilience," Scholz said. "With this investment, we are catching up technologically with the world’s best and expanding our own capacities for the ecosystem development and production of microchips. This is good news for Magdeburg, for Germany and for all of Europe."

Staged photo to signify the deal done. Intel CEO Pat Gelsinger and German Chancellor Olaf Scholz stood side by side, shaking hands. In front them, seated, are Intel's executive vice president, Keyvan Esfarjani, and chancellery minister Jörg Kukies, both also shaking hands. Berlin, June 19, 2023.
Intel's CEO and executive vice president (left of the picture) were in Berlin to finalize a deal with Chancellor Olaf Scholz and his team on MondayImage: Odd Andersen/AFP

Facilities to cost estimated €30 billion, taxpayer funding about one third

Intel envisions the construction costing in the region of €30 billion (around $33 billion) and directly creating around 3,000 jobs. It hopes the facilities will go online by 2027.

The project, first mooted in 2021, had come into question — mainly amid doubts over how much financial support the German government could offer and that Intel might require after poor financial figures in the last quarter.

Last year, Germany offered some €6.6 billion in subsidies to support the project. Monday's announcement was the upshot of months of additional talks behind the scenes.

The government in Berlin did not make a new figure public on Monday, but sources told multiple German news outlets that the new figure was roughly one-third of the value of the project, or just under €10 billion.

In its company press release, Intel acknowledged that the agreement contained, "increased government support that includes incentives, reflecting the expanded scope and change in economic conditions since the site was first announced." But it did not name any figures.

Taiwan, the semiconductor superpower

European rush to attract chip facilities

European countries have been rushing to attract semiconductor and computer chip manufacturers — with manufacturers in China, Taiwan, South Korea and Japan responsible for the lion's share of production worldwide — to better protect their supply chains.

High demand and chip shortages caused in part by the effects of the COVID-19 pandemic helped bring the issue into sharper focus. So did Russia's invasion of Ukraine to some extent, showing the speed with which a former partner economy might have to be sidelined in extreme circumstances. 

Deputy Chancellor and Economy Minister Robert Habeck called the agreement "an important contribution to growing European sovereignty." 

The plans still require the green light from the European Union, but the government in Berlin is optimistic on that front. It's part of a broader push to set up more chip and semiconductor production capacity in the EU. 

In the eastern German city of Dresden, for example, US company Infineon plans to expand facilities and create 1,000 more jobs.

In Wroclaw in Poland, Intel plans to build a chip factory that will assemble and test microprocessors. And US company Wolfspeed is planning to build a modern chip factory in the western German state of Saarland. 

Both the EU and the US last year launched projects designed to use taxpayer money to attract more production. 

Can microchips from Silicon Saxony challenge the US?

Part of a broader 'Silicon Junction' Magdeburg

The Magdeburg semiconductor factories should be part of a larger high-tech business park in Magdeburg, the state capital of Saxony-Anhalt, looking to attract suppliers and related businesses.

It's been dubbed "Silicon Junction," with Magdeburg not famous for its valleys, but known as a well-connected modal point in eastern-central Germany, placed roughly in between major cities like Berlin, Leipzig, Dresden, Bremen, Hanover and Hamburg. 

Intel's CEO Gelsinger said the project should directly lead to roughly 3,000 new high-tech jobs, as well as potentially tens of thousands more further down the supply chain. 

"Building the 'Silicon Junction' in Magdeburg is a critical part of our strategy for Intel’s growth. Combined with last week’s announcement of our investment in Wroclaw, Poland, and the Ireland sites we already operate at scale, this creates a capacity corridor from wafers to complete packaged products that is unrivaled and a major step toward a balanced and resilient supply chain for Europe," Gelsinger said. 

msh/rs (AFP, dpa, Reuters) 

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