Between a record US$33bn commitment in Germany and a smaller, though still significant, US$4.6bn commitment in Poland, US chipmaker Intel is clearly gunning for a renewed sense of relevance in the cutting-edge semiconductor industry.
Intel’s eyewatering capital expenditure has been partially matched by a €10bn (US$11bn) subsidy from the German government and around US$4.9bn from the Polish government.
In purely political terms, Intel’s European expansion drive exposes the unique makeup of the global semiconductor industry.
Despite semiconductors being a fundamental building block on top of which modern society runs, they are manufactured by a rarified few companies, the largest by far being the Taiwan Semiconductor Manufacturing Company.
Holding 55% of global market share, the importance of TSMC, and by virtue of association, Taiwan itself, in the semiconductor industry cannot be understated.
Escalating tensions between Taiwan and China have made this an elephant in the room that can no longer be ignored by Western leaders, so Europe’s bid to enhance domestic chipmaking capabilities is deemed an unavoidable expense.
Yet Europe’s eagerness to foot part of the bill for Intel’s European expansion significantly underplays the realities of what it costs to make these tiny pieces of silicon.
Chip foundries are one of the most capital-intensive structures in the world to build, taking around three years and over US$10bn to make a single facility, using Intel’s own statistics.
TSMC already has dozens of these foundries located in Taiwan, the US, Singapore and Japan.
Put simply, there’s little hope of Intel – or any other chipmaker for that matter – becoming comparable in size to TSMC on a global scale, even with multibillion-dollar government subsidies.
German Chancellor Olaf Scholf nevertheless called this week’s agreement with Intel “an important step for Germany as a high-tech production location – and for our resilience”.He added: “With this investment, we are catching up technologically with the world's best, and expanding our own capacities for the ecosystem development and production of microchips."
Intel to target fabless giants?
Though he has a tall order in front of him, Intel chief Pat Gelsinger believes his company can recapture some of the semiconductor market ceded over the years to Asian competition.
“We lost this industry to Asia, we have to be competitive if we're going to bring it back," he told Reuters in a recent interview.
Gelsinger’s company is in a unique position in the semiconductor industry, being both a designer and manufacturer of semiconductors.
Meanwhile, its major competitors Nvidia and AMD are ‘fabless’ companies, meaning they outsource the actual manufacture of their designs to an external foundry.
On the other side, TSMC is purely a manufacturer that takes the lion’s share of commissions from these fabless giants.
It sounds like a good model for Intel, keeping everything in-house, but there is a sense that the group is a designer, developer and manufacturer in one, but a master of none.
Perhaps not forever though: With more and more Intel foundries cropping up, perhaps it can sway the fabless giants away from the monolith that is TSMC in the years ahead.