Mr. Gelsinger has argued that government subsidies are crucial to bring the costs of building factories in line with costs of setting up plants in Asia. He has lobbied officials in the United States and Europe about parallel subsidy packages that could include grants to set up chip factories, stating that government support may determine how far and how fast Intel expands in both regions.
At the same time, Mr. Gelsinger and other Intel officials have held talks with officials in at least seven countries in Europe about a potential new site. Intel now has factories in Ireland and Israel, in addition to Arizona, Oregon and New Mexico.
Germany had seemed a strong candidate, partly because of the concentration of automakers that have become key customers for chip makers. Mr. Gelsinger spoke at an auto industry trade show in September in Munich, highlighting driver-assistance technology from Intel’s Mobileye unit and posting a photo fist-bumping with Angela Merkel, the chancellor at the time.
The country is no stranger to chip manufacturing. One major production hub is Dresden, where Infineon, GlobalFoundries and Bosch operate semiconductor factories. Magdeburg, in the state of Saxony-Anhalt, is about 150 miles northwest of Dresden and 100 miles west of Berlin.
How the Supply Chain Crisis Unfolded
The pandemic sparked the problem. The highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:
A reduction in shipping. With fewer goods being made and fewer people with paychecks to spend at the start of the pandemic, manufacturers and shipping companies assumed that demand would drop sharply. But that proved to be a mistake, as demand for some items would surge.
Demand for protective gear spiked. In early 2020, the entire planet suddenly needed surgical masks and gowns. Most of these goods were made in China. As Chinese factories ramped up production, cargo vessels began delivering gear around the globe.
Then, a shipping container shortage. Shipping containers piled up in many parts of the world after they were emptied. The result was a shortage of containers in the one country that needed them the most: China, where factories would begin pumping out goods in record volumes
Demand for durable goods increased. The pandemic shifted Americans’ spending from eating out and attending events to office furniture, electronics and kitchen appliances – mostly purchased online. The spending was also encouraged by government stimulus programs.
Strained supply chains. Factory goods swiftly overwhelmed U.S. ports. Swelling orders further outstripped the availability of shipping containers, and the cost of shipping a container from Shanghai to Los Angeles skyrocketed tenfold.
“Two semiconductor factories by Intel in Magdeburg are an important and strong impulse for the economy in difficult times, and a central leap for the digital sovereignty of Europe,” said Robert Habeck, Germany’s economy minister.
In addition to the German factory, Intel said it would spend an additional €12 billion to double its manufacturing space in Leixlip, a town west of Dublin. In Italy, the company said it has entered into negotiations to build an advanced factory to package and test chips, with a potential investment of €4.5 billion and roughly 1,500 jobs.
In France, Intel said it would build a research and development hub, creating 1,000 jobs, that will focus on fields that include high-performance computing. In Poland, the company is expanding lab space.