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Intel’s chips project is Europe’s largest foreign investment ever but Europe is divided on its merits.
This article is part of the European Union, Inc special report.
The €68 billion investment of U.S. tech giant Intel into a new microchips manufacturing site in the German city of Magdeburg could be Europe’s single largest foreign investment to date — but it’s too early to claim this means Europe’s industrial policy on chips is a hit.
The European Commission last February presented its grand chips plan to double its global market share in the semiconductors industry by 2030. It is the bloc’s most audacious attempt in rolling out large-scale public support programs worth billions to boost its local industries. If it succeeds, Europe would rival similar schemes in the U.S., China and elsewhere — and would be a rare success of industrial policy for a bloc that for the past decades has banished state interventionism in favor of free markets.
Commission President Ursula von der Leyen already called the strategy a “success” in her annual address to Parliament in September. “This is what trusted connectivity looks like,” she added at a conference in Tallinn this month, referring to Intel’s Germany project and the state aid approval for a €730 million investment of STMicro in early October.
But there are major hurdles that still stand in the way. Critics have argued that lining up money is one thing, but allocating it in the right way, and solving other bottlenecks — like finding skilled workers for the sector — is another.
What’s worse, the EU’s plan is also getting scathing criticism from smaller EU countries that fear the grand industrial policy scheme would benefit only the big EU countries, as well as from smaller, European firms that feel skirted.
“Why don’t you look at your own companies that are already here?” Harald Wack, chief executive of Wack, a family-owned business, said he told German ministry officials as he searched for money to support his €100 million new factory, right about the same time as Intel was shopping for public funds. “But you can’t get through.”
Europe’s political push to support the chips industry has triggered investment commitments since it was launched in February.
Germany and France each roped in a commitment for a multibillion “mega fab.” Intel committed to a €17 billion facility in German Magdeburg in March that it plans to expand in years to come; an American-French-Italian consortium of GlobalFoundries and STMicro teamed up for a €5.7 billion facility in the French Alps in July.
Already the size of Intel’s investment is without precedent. “Over the next 10 to 15 years, we want to build eight modules” that would “certainly” exceed €68 billion, Christin Eisenschmid, Intel Germany’s general manager, said. That would make the project the single biggest foreign direct investment in European history, according to German Trade and Invest, a state-backed investment agency.
While Intel has taken the plunge in Europe, the bloc is still hoping to attract commitments from two other big manufacturers of cutting-edge chips: Taiwan’s TSMC — the world’s largest chips manufacturer — and South Korea’s Samsung.
But Europe is competing with other parts of the world for those precious manufacturing bucks.
TSMC has committed investments in Japan and Arizona, and Samsung reportedly eyes an expansion in Texas. That’s on top of investments from both in Asian countries. Both have up until now been reluctant to publicly pledge any investment in the EU.
Industry executives are pushing Brussels to court both companies further.
“Unfortunately, at the moment we seem to try and do this [shift] with Intel, and Intel just doesn’t have the technology,” Hermann Hauser, venture capitalist and founder of Acorn Computers (which spun off of chip designer ARM), told POLITICO in July. “We need to do it with TSMC and Samsung.”
Hauser is joined in his criticism by other experts. “The Intel fab does not make Europe more independent, it does not lead to more security of supply, it does not lead to more competitiveness,” said Jan-Peter Kleinhans from Stiftung Neue Verantwortung.
The role of TSMC became even more remarkable over the summer. Production in Taiwan is still way ahead of the rest of the world — especially in the category of high-tech chips.
Tensions around the island, triggered by a visit by U.S. Speaker of the House Nancy Pelosi, reminded everyone of the importance of Taiwan for the industry.
“We cannot depend on Tech Taiwan,” Internal Market Commissioner Thierry Breton said in early September in Eindhoven.
The focus on massive projects championed by one of the three big manufacturers has attracted criticism as well — both in the industry and among lawmakers in Brussels.
Europe is home to many small and medium-sized hidden champions in the field of machinery and chip design, which fear they are fed crumbs, while the big players eat cake.
Bavaria’s Wack, the electronics precision cleaning company, started working on its new €100 million factory around the same time that the Intel deal was announced. The Bavarians tried to get public funding as well but failed, Harald Wack, the CEO, said. “I’ve gone from the secretary of state to the finance minister with the same issue,” he said.
One beacon of hope for them is a more modest project down south in Europe, in Catania, Sicily. French-Italian chips-maker STMicro got the European green light for €292 million of Italian state aid for a factory producing silicon carbide wafers used to print chips on — as part of Italy’s recovery plan.
Another concern, especially of politicians in smaller EU member countries, is that only larger EU states that can match private money will benefit from investments. The German government for example will invest at least €6.8 billion in the Magdeburg site.
The European Parliament’s lawmaker leading the file, Dan Nica (S&D, Romania) has pleaded that the Chips Act should “reduce disparities between the levels of development” of EU countries — i.e. it should benefit smaller countries too. A report published in October by think tank Bruegel also warned for a subsidy race, calling it “unsurprising” that Germany obtained the first large investments.
Some industry champions are convinced that Intel’s public subsidies for the fab in Magdeburg create the dynamics for a bigger, thriving semiconductors hub. “Once [manufacturers] are there, they will attract the suppliers, the customers, the talent. That first fab will pay for number two,” Peter Wennink, chief executive officer of chips supplier ASML, said.
The industry association Silicon Saxony estimated that in Saxony alone, around 100,000 people will be working in the microelectronics and communications industry in 2030, which would be 27,000 more than today.
But that doesn’t mean Germans, nor other Europeans, are expected to get bang for their taxpayers’ buck just yet.
According to Alan Priestley, VP analyst at Gartner, Europe needs at least another five years to set up an “ecosystem” of chips knowledge rivaling the U.S. Only then would the bloc push to attract a TSMC investment, he said.
“Magdeburg isn’t expected to come up until 2027,” Priestley said. “They might have started digging the hole — but it’s not instant gratification. This takes time.”
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