Berlin, Intel strike deal on $33 billion chip plant after months of subsidy talks

Berlin, Intel strike deal on $33 billion chip plant after months of subsidy talks
A smartphone with a displayed Intel logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

BERLIN/STOCKHOLM :Germany will grant U.S. chipmaker Intel 10 billion euros ($10.91 billion) in subsidies for its planned factory in Magdeburg, a source familiar the matter said, capping months of talks over a project expected to be worth around 30 billion euros.

Under CEO Pat Gelsinger, Intel has been investing billions in building factories across three continents to restore its dominance in chipmaking and better compete with rivals AMD, Nvidia and Samsung.

The deal in Germany would be Intel’s third big investment in four days, following a $4.6 billion chip plant in Poland and a $25 billion factory in Israel.

Intel plans to invest around 30 billion euros in the Magdeburg plant, the person said.

Germany has scheduled the signing of an agreement with Intel for 1245 GMT on Monday and both Chancellor Olaf Scholz and Intel CEO Pat Gelsinger will be present for the ceremony, the chancellery said in a statement.

Scholz said on Monday that his government was working on investment projects that would make Germany one of the world’s leading locations for semiconductor production.

Both the United States and Europe are trying to lure big industrial players via a mix of state subsidies and favourable legislation, with Berlin concerned about losing appeal as a place to invest.

The German government is investing billions of euros in subsidies to lure tech companies to Germany amidst growing alarm over supply chain fragility and dependence on South Korea and Taiwan for chips.

Berlin is currently also talking with Taiwan’s TSMC and Sweden’s electric vehicle battery maker Northvolt about setting up production in Germany, having already convinced Tesla to build its first European gigafactory there.

Frankfurt-listed Intel shares were 0.7 per cent lower at 1137 GMT.

The chipmaker last year announced plans to build a big chip complex in Germany, along with facilities in Ireland and France, as it seeks to benefit from the European Commission’s eased funding rules and subsidies as the EU tries to cut its dependence on U.S. and Asian supply.

It has not yet specified the exact size of the investment.

Gelsinger told Reuters on Friday that the gap between what Germany had offered and what Intel needed was too big but he expected to reach an agreement, adding that his request was to be cost competitive.

“We lost this industry to Asia, we have to be competitive if we’re going to bring it back,” he said, adding the overall investment for the site would be “tens of billions of dollars”.

($1 = 0.9150 euros)

(Writing by Christoph Steitz; editing by Rachel More, Jason Neely and Sharon Singleton)

Source: Reuters