According to a new Bloomberg report, chipmaker Intel Corporation’s plans to build a new manufacturing plant in Germany are facing the brunt of historic inflation, as the company’s spending estimates for the facility have nearly doubled.
The company is currently pursuing an aggressive capacity expansion plan at a time when the personal computing industry is experiencing a historic downturn as demand falls in a difficult macroeconomic environment and channel inventory remains elevated due to aggressive ordering in the aftermath of the coronavirus pandemic.
Authorities welcomed Intel’s decision to build a new chip manufacturing facility in Germany because it came at a time when car manufacturers were facing a chip shortage. This was due to automakers canceling orders as demand fell during the coronavirus pandemic, only to be caught off guard when demand recovered due to China’s quick reopening.
The problems were exacerbated by the fact that the Taiwan Semiconductor Manufacturing Company (TSMC) manufactures the majority of the world’s chips, which had to cater to the sudden increase in automotive demand by running its factories at higher capacity levels than usual as part of a process known as a Super Hot Production Run.
However, plans to build a new plant in Magdeburg, Germany, appear to have stalled as Europe’s soaring inflation in the aftermath of Russia’s invasion of Ukraine has driven up energy prices and increased the cost of construction materials.
Intel had to request additional subsidies from the German government, as its cost estimates for the plant have risen to €30 billion from €17 billion previously.
The German chip plant will be among the most advanced in the world. Last year, Intel announced plans to build a brand new facility in Magdeburg capable of producing 18A (1.8 nanometer) chips. The plant is one of three new facilities planned for Europe by the company, the other two being in Ireland and Italy.
The plant in Ireland will produce chips using the Intel 4 process technology, while the one in Italy will be a back-end facility. Intel had put a €33 billion price tag on its European plans back then, but as revealed by the report, this will only be enough to build a single facility now.
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