A slap in the face to Germany?

In 2022, the American company Intel announced that it would open two chip factories in Magdeburg and employ 3,000 people there. Now it has officially given up on that billion-dollar project.

The American chipmaker is in crisis. In the third quarter of last year, it reported a loss of as much as 2.9 billion dollars. Layoffs are also being announced: at the end of last year, 109,000 people worked for Intel worldwide, and at the end of this year there will be 75,000 of them.

Investing in factories in Germany was the idea of the previous management of the American company. The new management, led by general manager Lip-Bu Tan, believes that the investments in the factories are "unreasonable and excessive". And Donald Trump's "America First" policy also leaves its mark.

Billions in subsidies

For the city of Magdeburg and the German province of Saxony Anhalt, this means that it is left without an investment worth 30 billion dollars - of which almost ten billion should have been subsidies, that is, the money of German taxpayers. Fortunately, that financial support was not paid to Intel.

The decision on the subsidy was made by the previous German government of Chancellor Olaf Scholz. For Germany, the investment of 9.9 billion in the Intel project was a strategic decision.

Since the corona crisis, the dependence on the import of chips has become obvious, because during the pandemic, the supply from Asia almost completely stopped. Automakers' production lines were halted, laptops were hard to come by, and people waited months for washing machines to be delivered. Chip factories in Europe were supposed to bring greater security of supply.

A loser today, a winner tomorrow?

Has the idea of chip production in the east of Germany now failed? It's not. At least three new factories are springing up there. The Taiwanese company TSMC is not giving up. Its plant in the industrial zone of Dresden, which is also subsidized, should start operating in 2027. In the immediate vicinity, a factory of the chip manufacturer Infineon is also emerging. It is already in the "gray phase".

Intel's withdrawal is a "bitter pill that needs to be swallowed", according to the Magdeburg-based Volksstimme newspaper. But it can also be a chance:

"Yes, Magdeburg is a loser today, but it could soon become a winner," writes the German newspaper.

"The carpet for Intel is still there. Others can now enter an industrial zone that hardly anyone in Germany can offer."

Some well-known companies are already inquiring, says Reiner Haseloff, the prime minister of Saxony-Anhalt. Ten days ago, FMC (Ferroelectric Memory Company) announced plans to build a chip factory right in the Magdeburg industrial park. Founded in 2016, FMC is backed by companies such as Bosch, Air Liquide, Merck and other international investors.

What do the cases of Intel and Volkswagen show?

All in all, Intel's decision "is not a slap in the face to Germany", assesses the economic newspaper Handelsblatt. But it was a mistake, he says, that former chancellor Scholz and Economy Minister Robert Habeck invested such a huge sum in one project - especially since doubts were growing about whether Intel would even be able to compete with industrial giants such as TSMC or Samsung.

The good news for Germany is that not a single euro is now leaving the state coffers, Handelsblatt reminds.

However, as assessed by the Märkische Oderzeitung newspaper, the withdrawal of Intel, as well as the recent news about the large drop in Volkswagen's profit in the second quarter of this year, nevertheless points to one fundamental problem: the structural weaknesses of Germany as a business location.