Each week, Investment Monitor’s editors select a deal that illustrates the themes driving change in our sector. The deal may not always be the largest in value or the highest profile. We select it because of what it tells us about where the leading companies are focusing their efforts, and why. We pick apart the deal itself and the industry theme behind it. This new, thematic deal coverage is driven by our underlying Disruptor data, which tracks all major deals, patents, company filings, hiring patterns and social media buzz across our sectors.
US chipmaker Intel joined forces with the Polish Government on 16 June to announce a €4.2bn investment in the Lower Silesian region, in the west of the country close to the Czech Republic/Germany border. This comes as the EU ramps up its efforts to become self sufficient in the manufacturing of semiconductors in light of the shortage that occurred during the Covid-19 pandemic.
Why it matters
All foreign direct investment (FDI) projects are of value to the host country, but certain sectors are particularly sought after in the 2020s. Last week we highlighted Morocco’s announcement of Gotion High Tech’s $6.4bn EV battery plant – one such area that most countries in the world are looking to achieve ‘hub’ status – and this week we look at the semiconductor industry, the source of myriad government initiatives and countless trade visits. Intel’s announcement in Poland – one of the world’s FDI stars of the past couple of decades even before this project – is a big one for the country, and for the EU more widely.
Of the deal, Investment Monitor chief economist Glenn Barklie says: “In 2021, we correctly predicted that Intel would put a new fab plant in Germany. We also suggested that it may choose several locations in Europe (which has been the case given investments in France, Ireland, Italy and Spain), with a more cost-sensitive operation being placed in eastern Europe.
“The location of the new facility is a strategic choice. Miekinia, a small city located 26km to the west of Wrocław, allows access to Intel’s fabs in Magdeburg in Germany and its R&D facility in Gdańsk.
“Although incentives are generally seen as the icing on the cake in terms of site selection, for Intel it is much more of a driving factor. The company has (re)negotiated further incentives to build its Magedburg operation – $11bn up from $7.4bn, due to rising construction and energy costs.”
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The incentives offered as part of this new announcement are as yet unknown, but they are expected to be substantial. Poland set out to win the deal in a way that evidently impressed the Intel hierarchy. “Poland was just a little bit hungrier to win this site,” were the worlds used by Intel CEO Pat Gelsinger at a news conference announcing the project.
However, amid the fanfare there are still issues that will have to be addressed. Barklie continues: “With Poland still largely reliant on coal for its energy, it will be interesting to see how quickly the country can make the switch to renewables given Intel’s commitments to use 100% renewable energy by 2030. On this front, we have seen strong, recent growth in inbound renewables FDI in Poland, particularly onshore wind and solar power.
“More generally, Poland is the leading location in central and eastern Europe for greenfield investments. It accounted for about 25% of FDI projects in the region in 2022. Therefore, it would be expected to at least make the shortlist for such a large-scale investment.
“Other key drivers for semiconductor investments include skilled labour, both existing and incoming (via graduates from universities), innovation, infrastructure (transportation, IT, land/facilities) and utilities. The chosen location will have had to meet these factors.”
This investment in Miekinia should also bring additional investment and job creation to the region as Intel’s suppliers follow.
This Intel activity isn’t just a win for Poland, however. Barklie concludes: “In a wider context, the project is a huge win for Europe. Intel’s investments in Europe (more so the EU) offer at least some indication that the EU’s Chips Act is working. Many European countries will be hoping that several more tier-one chip manufacturers establish similar operations in the near future.”
Details of the deal are still emerging, particularly with regards to the public money used to entice Intel, but the company says the project will bring with it 2,000 jobs, with thousands more being created indirectly. As for the date when the site will be operational, the company’s statement says: “This facility will help meet critical demand for assembly and test capacity that Intel anticipates by 2027.” The deal continues a busy 2023 for Intel, as it has just invested $25bn in a new chip plant in Israel, also expected to be operational by the end of 2027.