Intel shares in the spotlight on $88 billion European investment

Intel (NASDAQ: INTC) shares have seen serious volatility since the covid-19 pandemic began, falling from $67 in mid-February 2020 to $46 a month later. They then recovered to $64 in June, before sinking to $44 in October 2020.

Then they returned to $68 on 9 April 2021, before falling to $46 today.

This Intel share price lurch is perhaps behind CEO Pat Gelsinger’s comments on its new $88 billion investment in Europe, as he explained that while the spending ‘isn’t a very Wall Street friendly message, it’s exactly the right thing to do…we’re not going to be governed by the near-term view of quarterly Wall Street.’

Gelsinger is planning an immediate $33 billion spend, with the remaining $55 billion spread out over the next ten years. With its market cap at only $188 billion, this investment will be critical to Intel’s future success or failure.

Intel share price: Magdeburg Plant

The headline news is that Intel is building two new ‘mega fab’ manufacturing plants in Magdeburg in Germany, at an initial cost of €17 billion. Opening in 2027, the plants are expected to soak up tens of billions of euros in EU grants and German state aid. It’s the jewel in the crown of a ten-year-long $88 billion plan to develop European manufacturing capacity, depending on demand and future subsidies.

The company has exalted that ‘Germany is an ideal place to establish a new hub — a ‘Silicon Junction.’’ But it’s also spending €12 billion completing its ‘Fab 34’ plant in Ireland that operates on older ‘mature’ technology, as well as up to €4.5 billion on a back-end manufacturing facility in Italy, which would put the finishing touches on Magdeburg-produced chips.

And in France, Intel plans to make its Paris-based Saclay technology cluster its European R&D headquarters, with over 1,000 researchers working on artificial intelligence and high-performance computing.

The aim of the Magdeburg plant is to produce microchips that are two nanometres wide or less, with Gelsinger emphasising that ‘when we were negotiating with the Europeans, there was a lot of sensitivity to going to two nanometres or below.’

These new chips are significantly smaller than more ‘mature’ technologies and are key to both Intel and European Union plans to reclaim market share in the semiconductor sector. This has become particularly important in wake of the pandemic microchip shortage, and subsequent price squeezes on microchip-critical neon and Palladium in the wake of the Russia-Ukraine war.

European Union ambitions

The European Union Chips Act is designed to double the bloc’s market value across the global semiconductor supply chain by 2030. Key to this plan was to convince one of the three leading semiconductor manufacturers — TMSC, Intel, or Samsung — to set up a ‘mega fab’ in the bloc. Accordingly, EC President Ursula von der Leyen has praised Intel’s decision as the ‘first major achievement’ under the Act.

However, the Financial Times reports that some European executives think Intel’s smaller chips, mostly suitable for smartphones and servers, will be mismatched with the commercial needs of Europe.

One argued ‘the narrative that everything will converge to less than five nanometres is a false statement… the main innovation for the auto industry is happening on mature nodes.’ Another believes ‘this is the strongest growing segment of semiconductors…the EU should support local production.’

There’s also opposition to the American giant benefiting from the EU’s €43 billion fund for chip subsidies. However, the bloc’s internal market commissioner, Thierry Breton, has argued that ‘some of the chip companies were probably thinking this was a good opportunity for them to have access to public money to enhance their production…we will not put public money to do this. We need to prepare cutting edge technology.’

Intel’s CEO concurs, saying ‘our planned investments are a major step both for Intel and for Europe…we are committed to playing an essential role in shaping Europe’s digital future for decades.’

Moreover, the Union is planning to ban the sale of ICE cars in favour of electric vehicles from 2035. Intel’s novel chips may not be suitable for current automobiles but will certainly feature in the EV revolution.

In Intel’s 2021 full-year earnings, Gelsinger told investors that ‘we exceeded top-line quarterly guidance by over $1 billion and delivered the best quarterly and full-year revenue in the company's history.’

With Q1 earnings due next month, the Intel share price will remain in the spotlight.

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