Intel plans to build a large complex to manufacture semiconductors in Germany, with an investment of 17,000 million euros and which is expected to start up in 2027, as well as the expansion of its factory in Ireland, budgeted at 12,000 million euros, as announced by the Tuesday of last week. These investments by Intel should contribute to doubling the world’s chip production capacity in the European Union, from the current 10% to 20% in 2030, as contemplated in the EU Chips Act, announced by the European Commission on the 8th of February and which plans to allocate more than 12,000 million euros in community and national subsidies and authorize 30,000 million euros in aid, credits and tax exemptions to achieve it, including Intel.
The EU subsidy to Intel has not been made public, but French media such as Les Echos or Le Monde put it at 40 or 50% of the total made by the US company. The German plant alone is expected to receive “tens of billions of euros in aid”, according to the Financial Times, although Pat Gelsinger, chief executive officer of Intel for just a year, assures in the British newspaper that the exact amount of grants has yet to be determined.
In the announcement recorded and broadcast on the Intel website, Pat Gelsinger speaks of an “initial investment of around 33 billion euros” in research and development and semiconductor manufacturing in the European Union, to create an ecosystem of semiconductors of first class with centers in France, Germany, Ireland, Italy, Poland and Spain, which could reach up to 80,000 million euros over the next decade, according to an official company statement.
The EU Chip Act contemplates giving important subsidies of all kinds to ensure that the EU doubles its chip production capacity in its territory, a legislative measure announced in February and that is expected to be approved
What already seems totally decided is that 17,000 million euros will initially be invested in the construction of a large semiconductor manufacturing complex in the German city of Magdeburg, halfway between Berlin and Hannover, with two chip production plants (fabs ). Construction is expected to begin in the first half of next year and it will be operational in 2027, although approval by the European Commission is pending.
7,000 jobs will be created building the complex and 3,000 permanent high-skilled jobs running it, plus tens of thousands of additional supplier and partner jobs, Intel estimates. The decision of the site in Germany is due to its proximity to centers of innovation and manufacturing, both in the region and in the vicinity. In fact, in the city of Dresden, southeast of Magdeburg, the American company AMD built a large chip plant in the 1990s for the facilities provided and it is still in operation, renovated, although it is now owned by the GlobalFoundries fund. The chosen site is very large and the terrain is very flat, with abundant water being close to the Elbe river and a stable electricity supply (at least so far).
Rendering of the future Intel plant in Magdeburg (Germany).
Intel plans to spend another $12 billion to double the production capacity of its Irish fab, which started in 1989 and made the first chip in 1993. It now produces chips using 14-nanometer technology and is Intel’s largest plant outside from the United States. With the expansion, it will produce chips with process 4 technology, as Intel now calls it, to avoid measuring the tracks of the chips in nanometers. Intel assures, in any case, that in the new Magdeburg plant it will make chips with nodes smaller than seven nanometers.
Apart from the fabs in Germany and Ireland, Intel is negotiating a chip assembly factory with Italy, with a potential investment of 4.5 billion euros, and which would start operating between 2025 and 2027. It could be done together with the planned purchase of Tower Semiconductor by Intel, a company that is associated with the French-Italian STMicroelectronics, which in turn has a large fab in Agrate Brianza (near Milan) and which a few days ago received a new loan of 600 million euros from the EIB, the European Investment Bank. STMicroelectronics is one of the four major European chipmakers, with plants also in Catania (Sicily) and Crolles, along with France’s Grenoble. The three investment plans add up to 33,000 million euros announced.
In addition, Intel plans to build a new research and development center in northwestern France, at Plateau de Saclay, creating 1,000 jobs and nearly half as many by 2024. The center will host the design of artificial intelligence and high-performance computing (HPC). In Gdansk (Poland) the space of a laboratory destined to develop neural networks will be doubled.
As for Spain, it has been decided that Intel will continue collaborating in the development of the next generation of the supercomputer that is installed in Barcelona, the Barcelona Supercomputing Center (BSC), on the grounds of the Universitat Politècnica de Catalunya (UPC), and that is next to the Nexus building where years ago Intel occupied a plant dedicated to the design of microprocessor technology with several engineers from the UPC and headed by Professor Mateo Valero, later at the BSC.
In Belgium, collaboration is maintained with IMEC, the great European development center for nanoelectronics and digital technologies, and in the Netherlands with ASML, the company that designs, produces and installs the most advanced chip manufacturing lines and supplies both Intel like TSMC and Samsung, the only one with EUV techniques, of extreme ultraviolet. The strong community subsidy to Intel has forced the investment to be distributed throughout the European Union and especially to Italy and France, although most of it will go to Germany and also to Ireland, where Intel already enjoys important tax exemptions from the beginning. The lower graph shows the location of Intel’s future investments in the EU.
Future plans of Intel in the European Union
Subsidies thanks to the EU Chips Act
On February 8, the European Commission approved a recommendation for the approval of a legislative mechanism, the so-called EU Chips Act, which allows the European Union to be more sovereign in the manufacture of chips in its territory and double its production capacity, going from 10% of the current market currently estimated to the target of at least 20% expected in 2030. The chip manufacturing ecosystem and its supply chain is extremely complex, as the lower graph of the legislative proposal highlights, with production in the EU ranging from 2% to 23% (the latter in chip manufacturing lines, thanks to the Dutch ASML).
On December 7, the highest representatives of the 22 EU Member States signed a joint declaration to expand the EU’s participation in the semiconductor supply chain and mobilize the necessary resources to achieve it. The challenge that the European Union faces to achieve a minimum of sovereignty in the supply of semiconductors is enormous, because the ecosystem is very complex, as the graph above highlights, and money is a relatively small part of the problem .
To be someone in the semiconductor market, the most important thing is to have manufacturing technology in some of the essential parts of the global ecosystem and, above all, the market. The European Union has basic technology in research and development of semiconductors, with a first-rate center in Belgium, and the world’s leading manufacturer of chip manufacturing lines, ASML, without which TSMC, Samsung and Intel would be nothing. , its main clients, who depend on a product that can cost 200 million dollars a unit.
Just a couple of days ago Peter Wennink, head of the Dutch ASML, warned that in 2023 and 2024 they will have supply problems from these chip production lines, because their capacity far exceeds demand. ASML is delivering more machines this year than last and more in 2023 than 2022. “We need to expand our production capacity significantly, more than 50%, and this takes time,” he tells the Financial Times. ASML’s supply chain for materials and products is extensive, with over 700 suppliers, 200 of which are critical. Current supply problems exacerbate the problem. ASML lenses, a critical component in lithography, are made by Germany’s Carl Zeiss.
The subsidies to Intel are part of the community objective that the European Union be a little more sovereign in the manufacture of semiconductors, reaching 20% of the world total in 2030
Intel is not alone in deciding to invest heavily in chip manufacturing plants; Apart from the announcement of 33,000 million euros in the EU, Intel has decided to invest another 40,000 million dollars to expand its plants in the United States and make a new one in Ohio, where it will allocate 20,000 million dollars. But it is that the Taiwanese TSMC plans to invest more than 100,000 million dollars in chip plants in the next three years and its rival Samsung plans to allocate 150,000 million dollars until the end of this decade to produce chips, almost a third of this amount to investments in more than 150 companies in his country, South Korea. ASML’s order book is therefore more than full and guaranteed for the rest of this decade.
The proportion of semiconductors manufactured in the European Union with respect to the world total is very low, 7%, according to the graph of the European Commission, but highly significant in the world production of electronic components for the automotive industry, where chips are a basic ingredient , as well as power electronics components and custom semiconductors such as ASICs and programmable logic networks. Companies like Infineon, NXP, Bosch or the aforementioned STMicroelectronics dominate this market, like the Japanese Renesas. There are other companies, such as the veteran American Texas Instruments or the also mentioned GlobalFoundries, with headquarters in the United States and plants around the world, which are not talked about as much as TSMC, Samsung or Intel and their products are equally basic.
Roughly a quarter of the $500 billion global semiconductor market, expected to reach $1 trillion by the end of this decade, is memory, DRAM and flash, which South Korea’s Samsung and SK Hynix have a virtual monopoly on. (with many factories in China), the Japanese-American Kioxia (of Toshiba and Western Digital) with a huge fab in Japan, and the American Micron (with fabs in China). It is a highly specialized production, with completely repetitive memory designs that require the most advanced production lines.
Another important part of the world market for highly advanced semiconductors, and the one with the most glamour, is made up of processors for computers, servers and smartphones. The undisputed leader here is TSMC, which builds to order for companies like Apple, NVidia and Qualcomm and is also thought to make some of Google’s, Facebook’s and Microsoft’s specific processors for servers and AI tasks. Samsung is the other big manufacturer of custom processors, apart from making their own to integrate them into their products.
Then there is Intel, where the vast majority of the chips it makes are microprocessors under its own brand. For some years it has been trying to produce for third parties, especially after the purchase of Altera, and to enter key markets such as smartphones, with little success so far, although it will now manufacture chips for Qualcomm. In any case, more than half of the chips consumed in the world are manufactured in China, mostly by Chinese companies, and many others in Taiwan, with plants in China. They are unglamorous products, like one-euro microcontrollers, but just as essential, as automakers and consumer electronics manufacturers have suffered from the ongoing pandemic and supply issues.
Workers move equipment at Intel’s fab 34 in Leixlip, Ireland.
All these chips (the so-called die, or piece cut from the typical 200 and 300 mm diameter wafer with hundreds of units) are later verified, encapsulated and assembled into components, mostly in China and Southeast Asian countries, which are subsequently assembled in final products in the same Asian countries. This ATP process (assembly, verification and encapsulation) represents 5% of the world total in the EU, according to the graph above.
It has been years since it made any sense to talk about the physical distance between transistors, but rather it is used basically for commercial purposes, to distinguish one more advanced or new process technology from another. The physical limit of circuitry has been reached long ago, but that doesn’t mean newer chips can process more information per unit area. The counterpart to such a density is the instability of the electrons that circulate along the tracks and that the circuits, in general, are less immune to interference and subject to very high temperature gradients in some areas.
New community industrial policy
For this reason, European manufacturers of automotive components, as in other industries, are not convinced that an extremely advanced chip factory is necessary, because their products require that the tracks of the circuits are tens or hundreds of nanometers, to work at higher power and better resist vibrations and interference from cars. Although they need a highly integrated central processor to govern the whole.
They would prefer, as is logical from their point of view, that most of the subsidies made by the EU directly and the countries that are part of the EU go to the construction of less sophisticated fabs such as the one that Intel wants to do and that also More attention will be paid to the ATP market, which are, in his opinion, just as important. The other problem with the EU Chips Act is that, with this subsidy policy, it completely changes the community’s industrial policy and opens the door for each country to subsidize its own industries, and not just chip manufacturing, which until now was categorically forbidden.
The powerful Vice President of the European Commission and Commissioner for Competition, Margrethe Vestager, had always been opposed to community aid and aid from the Member States, but with the Chips Act, which is clearly committed to a much more interventionist and subsidized line, at least in chip manufacturing, it has had to give its arm to twist and it has been a victory for Thierry Breton, the Commissioner for Industry, opposed to the orthodox Vestager line that the EU has followed so far.
Time will tell if the Chips Act, which is expected to be approved in the end, really serves to make the European Union a little more self-sufficient in the semiconductor market. So far, Intel has obtained direct subsidies of more than 5,000 million euros, according to Bloomberg, apart from large soft loans and tax exemptions to manufacture more of its chips on German and Irish soil.
Intel’s announcement has been made in the midst of a bloody war that is not known how it will end but that is already shaping a new world order in which the European Union must decide what position to take against the United States and China, as well as with Russia. who, like it or not, is the neighbor next door. Semiconductors, and much less digital policy and 5G networks, are not now priority problems for the European Union with what it faces, but they are also very important and that, as the first line of the EU Chip Act says, “chips of Semiconductors are central to the digital economy.