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Chipmaker Intel Corporation's plans to build a new manufacturing plant in Germany are facing the brunt of historic inflation as the firm's spending estimates for the facility have nearly doubled, according to a fresh report from Bloomberg. The firm is currently undertaking an aggressive capacity expansion plan when the personal computing industry is facing a historic downturn as demand slumps in a tough macroeconomic environment and channel inventory remains elevated due to aggressive ordering in the wake of the coronavirus pandemic.
High Energy Prices, Soaring Material Costs Make Intel Seek More Subsidies For German Chip Plant
Intel's decision to build a new chip manufacturing facility in Germany was welcomed by authorities since it came when car manufacturers faced a chip shortage. This was due to the car companies canceling their orders as demand slumped during the coronavirus pandemic, only to be caught off guard as it recovered due to China's rapid reopening.
The troubles were exacerbated by the fact that most of the world's chips are manufactured by the Taiwan Semiconductor Manufacturing Company (TSMC), which had to cater to the sudden increase in automotive demand by running its factories at higher capacity levels than it typically does as part of a process called a Super Hot Production Run.
However, the plans to build a new plant in Magdeburg, Germany, seem to have hit a snag since soaring inflation in Europe in the aftermath of the Russian invasion of Ukraine has driven up energy prices and increased the cost of construction materials. This has made Intel ask for more subsidies from the German government, as its cost estimates for the plant soar to €30 billion from an earlier €17 billion.
The German chip plant will be one of the most advanced facilities in the world. Intel announced last year that it would build a brand new facility in Magdeburg, capable of manufacturing 18A (1.8 nanometer) chips. The plant is part of the firm's plans to set up three new facilities in Europe, with the other two being in Ireland and Italy. Out of these, the plant in Ireland is planned to churn out chips made through the Intel 4 process technology, while the one in Italy will be a back-end facility. Back then, Intel had put a €33 billion price tag on its European plans, but as is evident from today's report, this will only be sufficient to build a single facility now.
During the announcement, Intel's chief, Mr. Patrick Gelsinger, stressed that the materials required to build a modern-day fab require significant steel and cleanroom space. Semiconductor fabrication is a delicate process that needs high levels of purification of the raw materials and the environment in which the chips are produced.
Currently, construction has not started on the German facility, and Bloomberg's sources believe the Italian project might also be delayed.
During a chat earlier this year, Mr. Gelsinger had shed some light on his firm's need to balance aggressive expansion and cost-cutting at a time when the broader economic environment is unsupportive of the chip sector. He highlighted that Intel's situation is akin to "hitting the brakes and hitting the gas at the same time," as he urged the U.S. government to speed up its plans of providing American chipmakers with subsidies as part of the U.S. CHIPS Act. The government followed up at the close of February, as it opened up applications and announced that any firm receiving U.S. funding would have to limit setting up new chip-making facilities in 'countries of concern' once the funds are approved.
