Energy crisis threatens Europe's semiconductor ambitions

According to German newspaper Volksstimme, Intel has abandoned its goal of building a major new chip plant in the eastern German city of Magdeburg in the first half of 2023, as the semiconductor giant wants more public subsidies.

That could deal a blow to Europe's ambitions to play a bigger role in the semiconductor market. Germany and the European Union are planning to strengthen the continent's resilience by carrying out more local chip manufacturing after the coronavirus pandemic and the Russia-Ukraine conflict highlighted long-term risks to global supply chains.

Intel announced plan earlier this year to build a plant in Magdeburg, which was originally due to start in mid-2023, with the German government promising 6.8 billion euros in subsidies.

However, sharp price increases in energy and raw materials reportedly disrupted Intel's initial plans. Intel's original cost estimate was 17 billion euros ($18 billion); now it will cost nearly 20 billion euros.

Benjamin Barteder, a spokesman for Intel, said, "Heightened geopolitical challenges and reduced demand for semiconductors mean that we cannot yet give a firm start date."

Intel added that it was in discussions with the government about how to close the funding "gap". "There is a funding gap in the current situation. We are working hard with our government partners to promote the project."

A spokesman for Germany's economy ministry said the country planned to support the Intel project "within the framework of state aid requirements and European Chip Act standards". The Federal Government supports the EU's common objective of further expanding Europe's share of the global semiconductor market.

In February, the European Commission unveiled its long-awaited "A Chips Act for Europe." Under the legislation, the EU plans to spend more than 43 billion euros in public and private funds by 2030 to support chip production, pilot projects and start-ups, as well as to build large chip manufacturing plants.

The EU bill also includes an ambitious goal of increasing the global share of chip production from 10 per cent now to 20 per cent by 2030.

Although the European Chip Act still has to make its way through the legislative process, it has prompted a number of companies, including Intel, to invest.

However, high energy prices, weak markets and the US Inflation Reduction Act could threaten Europe's semiconductor ambitions.