Chip giant Intel announced Monday that it is postponing plans to build two mega chip factories in Germany and Poland as the company faces lower-than-expected demand.
The announcement is a major blow to the German and Polish governments, which have heavily subsidized the projects and touted them as a boost to their national industries.
Intel also said it would pull back on its projects in Malaysia, but that this would not affect its plans for the US.
In Germany, construction of the Intel project was scheduled to begin in 2023, but construction was halted after the war in Ukraine caused inflation to rise.
German officials and the company then spent months in talks over financing, but both sides eventually signed an agreement in June 2023, which included increased subsidies.
Germany increased the subsidy for the 30 billion euro factory project to almost 10 billion euros, about 3 billion more than initially offered.
“We recently expanded capacity in Europe through our manufacturing facility in Ireland, which remains our primary European hub for the foreseeable future,” Intel CEO Pat Gelsinger said in a statement.
“We will postpone our projects in Poland and Germany for about two years, depending on expected market demand,” he added.
In Poland, Intel received $1.8 billion to set up a semiconductor factory near Wroclaw.
EU countries are trying to ramp up production of semiconductors, used in everything from fighter jets to smartphones, and to reduce reliance on Asia, as shortages in some sectors have emerged due to the pandemic. Russia’s war on Ukraine has also highlighted the risks of over-reliance.
Intel also announced Monday that it would receive up to $3 billion in direct funding from the U.S. government to boost semiconductor production for the U.S. military.
This is part of efforts to “secure the domestic chip supply chain,” according to a statement from Intel.
The company also said it would work with the Department of Defense to improve the resilience of U.S. technology systems.
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