Magdeburg, in the former East Germany, is famous for its imposing Gothic cathedral, and not much else. Now it is poised to play a key role in US and European efforts to tip the balance of power in the world.
Intel Corp. unveiled plans on March 15 to build a giant 17 billion euro ($18.7 billion) factory to produce next-generation semiconductors in the city, adding to new plants in Arizona and Ohio announced by the company in the last six months.
They are part of CEO Pat Gelsinger’s plan to wrest control of production from Asia and tackle a global chip shortage, exacerbated during the COVID-19 pandemic and exposed again after the Russian invasion of Ukraine. “The situation reinforces the reason why we are undertaking this project and the need for a balanced and resilient supply chain globally.”, Gelsinger said after the announcement of the Magdeburg plant.
His ambition is one that the United States and the European Union are pledging to back with a combined $100 billion in a subsidy race to reduce reliance on imports, just as China plans to become a chip powerhouse. Behind closed doors, however, some in the industry are increasingly concerned that the push to make the West more competitive is backfiring.
Not only are they concerned that money is too little and too late, but that political conditioning on aid could further complicate global supply chains. Different parts of the planet will compete to secure supply while defending national plants that cannot yet fill the void.
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Semiconductor shortages have stalled manufacturing of some cars and delayed shipments of video game consoles and smartphones, making Washington and Brussels realize their continents depend on a handful of regions for key parts. The most prominent is Taiwan, a geopolitical hotspot due to historically tense relations with China and whose vulnerability has come under greater scrutiny since the Russian invasion of its smaller neighbor.
However, as dysfunctional as it may seem at the moment, the supply chain is global and fully integrated. Undoing it could carry greater risks, said Rudi De Winter, CEO of German chipmaker X-Fab Silicon Foundries.
The semiconductor industryit is a very global business, and it has done well being a global business”, Held. “This whole trend of trying to make things sovereign in each region and have their own supply chain is more politically driven and not driven by the semiconductor industry.”
Russia, which has been sanctioned by the United States and Europe, is now a stark example of how semiconductors have become increasingly important political tools. These items were some of the first goods Washington and Brussels targeted to isolate Russia from the world economy, and they have continually threatened further action. Car manufacturing in Russia, for example, has already been affected.
Russia and Ukraine, meanwhile, export palladium and neon used to make semiconductors, though chipmakers have downplayed the potential impact.
US Commerce Secretary Gina Raimondo said in a March 9 interview that if Chinese companies don’t abide by US restrictions against exports to Russia, Washington could shut down companies by cutting off access to equipment and supplies. American software they need.
Semiconductors and other high-tech products are becoming “weapons” with the current trade wars and supply chain issues, said Rafael Laguna de la Vera, CEO of SPRIN-D, the German federal agency for disruptive innovation. “Therefore, the regions must invest in high technology to be resistant“, he claimed.
The United States and Europe want to regain their share of the chip market after the slump of recent decades. In the 1990s, the United States accounted for nearly 40% of global silicon wafer production, while the EU accounted for more than 20%, according to figures cited by Washington and Brussels. Now the US is below 15% and the EU is close to 10%.
How Biden plans to tackle the shortage
In an effort to shift production away from Asia, President Joe Biden plans to spend $52 billion on domestic semiconductor research, development and production as part of his sweeping competition bill with China, though it is still pending passage.
Meanwhile, the 27 EU member states are barely considering the European Commission’s recent $48 billion proposal to boost the bloc’s chip production capacity.
China has already been spending what could be as much as $150 billion by 2030 to boost production. The country is still far behind, especially when it comes to manufacturing advanced chips, but it is catching up fast.
“We are focused on revitalizing the US semiconductor industry,” Raimondo said at Intel’s new plant in Ohio in January. “Semiconductors are the essential building blocks of our modern economy.”
However, some members of Congress want taxpayer funds to be subject to barriers that prevent companies from using the money to invest in China, while Intel at one point lobbied for taxpayer funds not to be used. will go to companies based abroad.
In the past, things were simple for chipmakers, said Kurt Sievers, CEO of Dutch chipmaker NXP Semiconductors NV. The companies “they could choose the production and R&D locations wherever they wanted“, he pointed. “But I think we have to be realistic: maybe these times are over. Now we face the world as it will evolve.”
Gelsinger, CEO of Intel, is one of the main drivers of government investment in new plants. Despite the naysayers, he believes public funding could help Intel reduce the cost of trying to catch up on next-generation chips, having fallen behind Taiwan Semiconductor Manufacturing Co, known as TSMC, and South Korea’s Samsung Electronics Co. would also make the United States and Europe more self-sufficient.
“Let’s not waste this crisisGelsinger told Bloomberg earlier this year. “It’s good economics, but it’s also national security”. The new Intel plant in Magdeburg, which will start production in 2027, is part of an investment package of 80,000 million euros in Europe by the Californian company.
It remains to be seen if the numbers add up. The United States and Europe have to catch up, said SPRIN-D’s De la Vera. Japan, for example, also promises state aid to boost production. Among the new facilities is a $7 billion factory planned by TSMC in conjunction with Sony Group Corp. and Denso Corp.
South Korea also wants to become the world’s largest chip producer, for which companies and the government will invest a total of $450 billion in the sector between now and 2030.
Source: Gestion
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