Intel is spending $33 billion in Germany in a historic expansion

BERLIN/STOCKHOLM (Reuters) – Intel Corp (INTC.O) will spend more than 30 billion euros ($33 billion) to develop two chip plants in Magdeburg as part of its push to expand into Europe, a deal for consultant Olaf Scholz. It was hailed Monday as Germany’s largest ever foreign investment.

Berlin has agreed a subsidy worth about 10 billion euros with the US chipmaker, a person familiar with the matter said, more than the 6.8 billion euros it initially offered Intel to build two flagship facilities in the eastern city.

Intel CEO Pat Gelsinger expressed his gratitude to the government and the state of Saxony-Anhalt, where Magdeburg is located, “for realizing the vision of a vibrant, sustainable and leading semiconductor industry in Germany and the European Union.”

Under Gelsinger’s leadership, Intel has invested billions in building factories across three continents to regain its dominance in the chip industry and better compete with rivals AMD (AMD.O), Nvidia (NVDA.O) and Samsung (005930.KS).

“Today’s agreement is an important step for Germany as a high-tech production site – and for our flexibility,” Scholz said after the signing on Monday.

“With this investment, we are technically catching up with the world’s best technologies and expanding our own capabilities for microchip production and ecosystem development.”

The German deal marks Intel’s third major investment in four days. On Friday, it unveiled plans to build a $4.6 billion chip factory in Poland, another member of the European Union, while Israel said on Sunday that Intel would spend $25 billion on a factory there.

Globally, semiconductor manufacturing is expected to become a trillion-dollar industry by 2030, expanding from $600 billion in 2021, according to McKinsey.

Both the US and Europe are trying to attract big industrial players with a combination of government subsidies and favorable legislation, with Germany worried about losing its attractiveness as a place to invest.

The government in Berlin is investing billions of euros in subsidies to attract tech companies, amid growing concern about supply chain fragility and reliance on South Korea and Taiwan for chips.

Attractive site

“The scale of Intel’s reaffirmed and growing commitment to its expansion in Magdeburg speaks louder than words about Germany’s attractiveness as a high-tech business location,” said Robert Herrmann, CEO of the German State Agency for Trade and Investment.

Berlin is also talking with Taiwan’s TSMC (2330.TW) and Swedish electric car battery maker Northvolt about starting production in Germany, having already persuaded Tesla (TSLA.O) to build its first European giant factory there.

Frankfurt-listed Intel shares were up 0.3 percent at 1534 GMT.

Monday’s agreement includes what Intel said is increased government support, including incentives, reflecting the expanded scope of the project since it was first announced in March 2022.

Initially, Intel wanted to invest 17 billion euros in the Magdeburg plant, an amount that nearly doubled to more than 30 billion.

“This shows that Germany is a very attractive location. We play at the forefront of global competition, providing sustainable, qualified jobs and value creation,” Economics Minister Robert Habeck said.

Intel said the first facility in Magdeburg is expected to enter operations 4-5 years after the European Commission approves the support package.

About 7,000 build jobs will be created in the first expansion, the US chipmaker said, in addition to about 3,000 high-tech jobs at Intel and tens of thousands more across the industry.

Intel last year announced plans to build a large chip complex in Germany and facilities in Ireland and France as it seeks to take advantage of easier European Commission funding and support rules. The European Union is trying to reduce its dependence on US and Asian chip supplies.

Gelsinger told Reuters on Friday that the gap between what Germany offered in support and what Intel needed was very large, but he said he expected an agreement, adding that his request was that the cost be competitive.

“We lost this industry to Asia, we have to be competitive if we want to bring it back,” he said.

($1 = 0.9150 euros)

Additional reporting by Maria Martinez and Reham El Koussa. Writing by Christoph Steitz; Editing by Rachel Moore, Jason Neely, Sharon Singleton and Kathryn Evans

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