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Intel Wants $5 Billion More From Germany for a Chip Plant

Intel Wants $5 Billion More From Germany for a Chip Plant

(Bloomberg) -- Intel Corp. is seeking an additional €4 billion to €5 billion in subsidies from the German government to move ahead with a chip manufacturing complex in the eastern part of the country, according to people familiar with the matter.

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The company postponed the start of construction at the plant — which it had previously agreed to build in Magdeburg with €6.8 billion ($7.2 billion) in government aid — at the end of last year because of economic headwinds, and is now looking for more funds, said the people, who asked not to be identified because the information isn’t public.

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Under Chief Executive Pat Gelsinger, Intel has embarked on a massive build out aimed at regaining its industry leadership and diversifying the manufacturing hubs for critical components, which are currently concentrated in East Asia. Magdeburg was chief among those plans after it outbid other sites in Europe. Since then, energy prices have become extremely volatile, and inflation has sent the costs of construction and materials soaring.

“Disruptions in the global economy have resulted in increased costs, from construction materials to energy,” Santa Clara, California-based Intel said in a statement. “We appreciate the constructive dialogue with the federal government to address the cost gap that exists with building in other locations and make this project globally competitive.”

Intel may also delay its timeline for a separate planned project in Italy, another key piece of its European expansion plan, the people said. Conversations with the Italian government are ongoing, they said. The government didn’t immediately respond to a request for comment.

Intel’s expansions in Ireland and France, meanwhile, remain largely on track, according to people familiar with the projects.

Shares fell 1.8% to close at $25.53 in New York trading on Tuesday.

Intel announced a massive expansion across Europe last year that, at the time, was worth €33 billion, including a research center in France and an expansion of its existing chip facility in Ireland.

Those plans are facing delays just as the US is pressuring other nations to help keep China’s chipmaking abilities from advancing. Last year, the European Commission announced a plan, called the EU Chips Act, to pour €43 billion into the semiconductor industry on the continent. The US similarly laid out a $50 billion plan to subsidize its own domestic production.

The German economic ministry declined to comment on its discussions with Intel, but pointed to the EU’s goal of producing 20% of the world’s semiconductors by 2030.

“With this goal in mind, the federal government is prepared to support the semiconductor industry in Germany with several billion euros and to enable new factories to be set up,” it said. The ministry said that any additional funding would need approval from the European Commission.

Read More: Intel Seeks Salvation in This German Town of Boom-to-Bust Cycles

Intel had originally estimated that the project in Germany would cost €17 billion but now expects to spend €30 billion, according to the people familiar with the situation. Like most projects that will receive government funding through the EU’s Chips Act, Intel was expecting roughly 40% its project to be subsidized, people familiar with the situation said. While the company was expecting government funds, they said, it’s also open to other sources of government aid including tax breaks or energy subsidies.

--With assistance from Petra Sorge and Debby Wu.

(Updates with details on Italian plan in fifth paragraph)

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