(Bloomberg) -- Intel Corp.’s decision to postpone its planned factory in Germany marks a setback for the European Union’s semiconductor ambitions and will reignite controversy in Berlin over where to allocate €10 billion ($11 billion) in earmarked subsidies.
The embattled US chipmaker’s move to delay the project in Magdeburg by about two years is a blow to the EU’s goal of producing one-fifth of the world’s semiconductors by 2030. The German facility was on track to be the biggest plant supported under the EU’s Chips Act that was passed last year.
Governments around the world have lavished public funds on the chip industry in a push to localize production of components that control everything from cutting-edge artificial intelligence to everyday gadgets. The push comes after Covid-era supply disruptions and as rising tensions between the US and China over Taiwan could interfere with a key source of the essential technology.
“We have earmarked funds that will continue to be needed for our semiconductor projects,” German Chancellor Olaf Scholz told reporters Tuesday during a trip to Kazakhstan. “It is obvious that we also want to promote semiconductor development in Germany.”
Intel announced late Monday it is also postponing a new factory in neighboring Poland as it seeks efficiencies to counter shrinking sales and mounting losses. The company said last month it will slash 15,000 workers, find $10 billion in cost savings and suspend dividends.
After years of losing ground to rivals and seeing its technological edge slip, the Silicon Valley pioneer is valued at less than $90 billion and no longer ranks as one of the top 10 chip companies on that basis. Its shares have fallen 58% so far this year.
No state money has been used yet for the Magdeburg project, which was in the final stages of getting EU approval. Its delay could free up funds as Germany faces a financing gap of at least €12 billion in its 2025 draft budget.
Finance Minister Christian Lindner said all funds not required for Intel must now be reserved for the reduction of “open financial questions” in the federal budget. “Anything else would not be responsible politics,” he said in a post on X.
Lindner is a key protagonist within the German government who insists the country sticks to its constitutionally enshrined borrowing limits. Officials like Economy Minister Robert Habeck, however, have lobbied to reform or suspend the so-called debt brake to help finance investments in technology and crumbling infrastructure.
The funds for the government’s semiconductor subsidies are not part of the regular budget, they are located in a special pot called climate and transformation fund managed by Habeck’s economy ministry.
Intel’s delay is “purely a business decision,” Habeck said, speaking on the sidelines of a startup forum in Berlin. Germany will maintain its strategy of encouraging semiconductor production in Europe, he said.
Drop in Confidence
Intel’s decision adds to a string of recent bad news for Germany. Volkswagen AG, its top automaker, made a shock announcement this month that it wants to end a decades-old labor pact and possibly close domestic factories, citing lagging demand. BMW AG cut its full-year earnings guidance and is wrestling with a large recall over potentially faulty brake systems supplied by Continental AG.
Investor confidence in Germany’s economy plunged to its lowest level in almost a year. An expectations gauge compiled by the ZEW institute fell to 3.6 in September from 19.2 in August. None of the 22 economists surveyed by Bloomberg before the release foresaw such a slump.
“The hope for a swift improvement in the economic situation is visibly fading,” ZEW President Achim Wambach said Tuesday in a statement. “Although the falling economic expectations for the euro zone point to an overall rise in pessimism, the drop in expectations for Germany is significantly greater.”
To be sure, other German chip projects are making progress. Taiwan Semiconductor Manufacturing Co. broke ground in eastern Germany last month for its first European plant. About half of the money for that €10 billion fab will come from state subsidies.
“Without Intel in Magdeburg, Europe is lacking its flagship project,” Frank Bösenberg, the managing director of German industry group Silicon Saxony, said. “Neither a European market share of 20% or the desired technological sovereignty through semiconductor production below 10 nanometers seem realistically achievable by 2030.”
--With assistance from Jillian Deutsch and Michael Nienaber.
(Updates with Scholz comment in fourth paragraph.)
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