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Industrial Policy

Intel’s microchips ‘mega fab’ raises questions on EU support

U.S. technology giant Intel and the EU’s top brass got a win-win on Tuesday when the firm unveiled its long-awaited plans to build a state-of-the-art microchips factory on the Continent.

The big question left unanswered for now: Is the buck worth the bang?

Intel’s Chief Executive Officer Pat Gelsinger presented his plans for a €17 billion manufacturing site in the German city of Magdeburg, as well as investments in Ireland, France, Italy and elsewhere. The new site, known as a “mega fab,” is a first-of-its-kind project in Europe, which has fallen behind the U.S. and Asia in the global race for microchips technology.

It’s a political win for EU leader Ursula von der Leyen and her right-hand man on chips policy, French European Commissioner for the Internal Market Thierry Breton. In exchange, Europe is putting together a generous public-subsidies package and loosening its state-aid policy for Intel and the broader microchips ecosystem.

But the project, which is expected to draw huge sums of public investment, already faces charges that it is missing its target.

“A fab is not a strategy,” said Jan-Peter Kleinhans, a researcher at Berlin-based think tank Stiftung Neue Verantwortung. “It’s crucial for Europe to continue to invest in its niche technology where we already excel. But this is all stuff that has nothing to do with, or very little to do with, the type of cutting-edge manufacturing that comes from Intel or TSMC,” he said.

For Intel’s public affairs officials, the work of clearing the project’s funding continues. The firm has held discussions with several European governments for months and expects a substantial support package from EU, national and local budgets to get the foundry site up and running in coming years. For now, it is holding off on dispensing specific information on which authorities pledged what kind of support.

The lack of clarity on how taxpayers’ money is being spent has angered lawmakers who are scrutinizing the Commission’s public funding schemes.

“Neither the Commission nor Intel have so far been able to tell us how much public money will flow into their new projects,” said MEP Tiemo Wölken, a German Social Democrat. “While we can and should be happy about the decision of global market leaders to invest in Europe, we should not forget to also do our own due diligence and create accountability.”

Two to tango

In past months, Gelsinger’s and Breton’s teams worked closely together to get Intel’s investment off the ground. The two are self-described longtime friends who worked together when Breton was running French IT company Atos.

The European Commission in late 2020 started working on a massive industrial investment plan called an Important Project of Common European Understanding (IPCEI), the second such project to support its local microchips industry. But the process to secure and clear EU, national and private funding is slow. The Commission then shifted gears and sped up the drafting of its European Chips Act, which it proposed in February and which opened the door for national governments to pour large sums of money into “first-of-its-kind” industrial projects.

Intel got the message.

“This unique investment — part of what the EU Chips act is designed [to do] — is ‘first-of-its-kind.’ It’s advancing the state of technology. And this will be the most advanced technologies that are manufactured in the German location,” Gelsinger told reporters after Tuesday’s announcement.

The cherry on the cake for the U.S. firm was a full-throated endorsement from the EU’s top-level officials, with a video message from Commission President Von der Leyen at Tuesday’s announcement, as well as an acte de présence by Breton at a media briefing with Gelsinger.

“It is really a truly pan-European project and it is something that we have discussed a lot with Pat and with Intel,” Breton told reporters.

Money flows

Intel is discussing public-support packages with several national governments and looking at the EU’s funding lines to help prop up the Magdeburg project.

“Each negotiation we’re conducting with the member states, but it all falls under the consistent policies of the EU chips programs,” Gelsinger said.

The chief executive took over leadership at Intel only just over a year ago. His campaign for an EU fab started right in the middle of a major disruption of global chips supply chains that also caused Europe’s carmakers’ production lines to grind to a halt.

Gelsinger played into European leaders’ fears that the Continent had grown overly reliant on chip manufacturers in Asia. Intel’s new investment “is a watershed moment for the EU semiconductor industry, a declining industry for 30 years. Today it begins its resurgence,” he said Tuesday.

The firm hasn’t disclosed which commitments it got in Germany at the state and local levels, nor at the EU level. It dismissed questions saying the details “are so, so premature because they’re all subject to [the] Commission’s approval,” said Keyvan Esfarjani, Intel’s chief global operations officer.

Intel previously floated the figure of 30-40 percent of costs that would have to be offset with public funding in order to make Europe competitive with Asian countries.

“We are clearly counting on and looking forward to [getting] the kind of support needed in order to get projects like this off the ground,” said Esfarjani, stressing it’s about “economics as well as the other governments around the world, the kind of support that they give.”  

Tech sovereignty quest(ions)

Breton’s push to strengthen the microchips sector fits within a broader strategy to strengthen Europe’s “strategic autonomy” and “technological sovereignty,” as global free trade and supply chains face increasing pressure.

But while Intel’s fab will mean the Continent would be producing the most advanced chips, it’s not clear how useful this is to Europe’s largest industries, nor to its political control over the sector globally.

First, Europe’s carmakers and other industries are a minor market for cutting-edge semiconductors. These chips have tiny nodes as small as 7 nanometers and going down to 5 and less, and are primarily used in smartphones and other new consumer tech products — none of which are produced in Europe on a large scale.

Secondly, Intel’s investment in Magdeburg, for now, is modest compared with the manufacturing sites it and its competitors TSMC and Samsung run in Taiwan, the U.S. and South Korea.

“We shouldn’t kid ourselves and realize that also in the future, the majority of semiconductor manufacturing, also for European companies, will happen in Taiwan, South Korea, China and the U.S.,” said Kleinhans from Stiftung Neue Verantwortung. Taiwan and South Korea produce around four times as many chips as Europe, and China produces around three times as many, he added.

And thirdly, experts have called on EU policymakers to invest in areas where Europe has a unique advantage over other regions. The argument: The microchips supply chain is so complex and distributed across the world that it’s better to single out niche technologies Europe can lead and control than to try to compete with industrial juggernauts like the U.S. and China.

Already, Europe has such “choke point” technologies in place, with the Netherlands’ global microchips printing giant ASML valued the highest of all European tech firms because of its unique machines that TSMC, Intel and Samsung need to print the latest generations of chips.

“In the Chips Act, the Commission talks about ensuring that Europe has leverage in times of geopolitical tension. And with these niche monopolists we ensure, in the long term, that we have geopolitical leverage,” said Kleinhans. “So we want to have the next ASML.”

Samuel Stolton contributed reporting.

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