Intel picks Germany for Silicon Junction

Intel has picked Magdeburg, a city in the north of Germany, as the destination for a mega fab that will employ 3000 specialists with an initial investment of €17bn. The site will represent what Intel CEO Pat Gelsinger called the Silicon Junction for its ambitions on the continent.

In announcing the decision, which is the result of a project to find a suitable European site for around a year and which comes a matter of weeks after the European Union unveiled its €43bn Chips Act, Gelsinger said a new fab needed to be built around an existing ecosystem. The German fab will not be far from an existing chipmaking hub Dresden as well as the leading supplier of lithography equipment ASML in The Netherlands. 

In a video made for the announcement, Gelsinger said details of the financial support package were still to be finalised, but Keyvan Esfarjani, chief global operations officer at Intel, said the company had obtained support from the German federal government for the building of the plant. Intel expects to break ground on the site next year and to be able to sell product made there in 2027.

The new fab will not suck investment away from its existing fab in Lexilip, just outside Dublin, Ireland. That fab will receive another €10bn to double its production floorspace and install what the company calls its Intel 4 process: the new name for what it used to refer as 7nm, and which is going into production at other sites in 2023.

That is not the end of the overall €80bn plan, at least as it stands today: we have to remember that big chipmaking investments do not always come to fruition, though as a company Intel does not have a history of reneging on them. There are however a couple of call centres and warehouses dotted around the UK that at one point were meant to house advanced fabs. All it takes is a slump in demand for the money to be reallocated elsewhere, and the chip business is still riding high while customers scrabble for supplies.

Intel plans to build in Italy a back-end plant for packaging devices made at its front-end fabs. As strange as it may sound, this is something of a first for Europe. Historically, most of the packaging work has gone to the Far East. Italy, however, has its own small network of fabs that have diversified into things like imaging sensors and has the kind of engineering experience that can support the multichip packages that suppliers like Intel are working on.

Finally, there will be an expansion of R&D labs, including a design centre close to the Paris R&D hub, a supercomputer-oriented centre close to Barcelona and a increase in space at its Poland facility. 

To a large extent, the deal favours the ambitions of both sides of the deal. The European Union feels the need to extricate its industry from a flow eastwards that looks increasingly threatened by geopolitical instability, not least the possibility that Taiwan’s hold on advanced chipmaking might eventually become the way in which mainland China might secure its own hold on the island in the event of an invasion.

Chastened by the situation with natural-gas imports from Russia, the possibility that China might halt shipments of chips for just about anything is not something politicians want to worry about, even if the environment around chipmaking makes it exceedingly fragile if the world does indeed retreat from globalisation. That reality is one that Europe’s own chipmakers see and is why they have proved so reluctant to step up even when presented with the option of building an Airbus of chips, as they were a decade ago.

For Intel, a retreat from globalisation into a more balkanised environment is one that can greatly improve the company’s prospects. The company was the leader in chipmaking for decades and has been struggling to catch up in the hands of former CTO Pat Gelsinger, who is very much an enthusiast for in-house manufacture. Intel’s aim is not just to support its own products but to help promote its ambitions of making chips for other companies on a foundry basis.

Up to now, no-one has found a successful formula for beating TSMC at its own game. Intel will be helped by its acquisition of the much smaller foundry Tower Semiconductor, based in Israel, but geopolitics and concerns over security of supply may prove to be bigger factors in giving Intel a leg-up. Those fears will help overcome the attitude of anyone-but-Intel that has permeated the industry for many years, driven by the chip giant’s attempts to destroy its competition.

What also might have helped Intel a bit more commercially would have been to have its foundry-support design centre somewhere like Bristol or Cambridge, where there are a lot of engineers who are experienced in dealing with TSMC and the other foundries, and likely more so than those based around Paris. With the EU backing action through the European Chips Act so enthusiastically, it should come as no surprise that Brexit has probably delivered the opposite of a dividend here.