Intel announces that it will pause plans for a megafabrication in Germany due to ongoing financial problems

Intel has decided to cut $10 billion off its budget and halt plans to build an advanced foundry in Magdeburg, Germany, for two years. The facility was originally planned to begin construction in 2023 and production in late 2027.

Intel CEO Pat Gelsinger announced his decision in a memo sent to employees, and later published: "We will pause projects in Poland and Germany for approximately two years due to anticipated market demand."

The fab would be delayed until at least 2020. The construction of the Foundry was already delayed by various historical mishaps. These included landing on a 6,000-year-old neolithic grave site and having too much soft ground. Intel also pressed the German government to give them more money. This was flatly denied.

Rumours have been spreading that the fab could be cancelled soon, but this is often true for any construction project that has been delayed even slightly. Now we know that it is delayed, not cancelled. Intel will need to be in better financial shape than it is now to restart construction of the Magdeburg fab, which was originally estimated to cost EUR17billion. The company announced recently that it would be laying off 15,000 workers. The company has already let go half of its employees, and the other half will be informed by mid-October.

In the same way, the restart of the Magdeburg project and the packaging plant in Poland, which has also been delayed by two years, depends on the demand for its processors, or those produced independently through its foundry services. Intel is also waiting until demand increases before expanding its packaging plant in Malaysia.

"Now that we've completed our transition to EUV it's time for us to shift from an accelerated investment period to a normalized cadence and a flexible and efficient capital planning," Gelsinger wrote in the note.

Intel has gradually separated its core business (Intel Product), from its manufacturing arm, Intel Foundry, over the last few years. The company first opened its doors to allow other companies to build chips in their fabs. Then it divided the financial reporting into the two divisions. Today, Intel announced that it would run Intel Foundry (as a claimed) as an independent subsidiary.

The leadership team at Intel Foundry can make their own decisions, and work independently from Intel Product. However, they will still report to Pat Gelsinger.

The fact that Amazon has just signed a multi-year, multibillion-dollar framework that includes wafers from Intel's fabs will give the foundry team an immediate glimmer hope. It still needs to attract more clients and improve their offerings to really appeal customers who might otherwise choose the world's biggest foundry, TSMC.

Intel has sided with TSMC in recent years for many of its products including its Alchemist graphics processors and, most recently, its Lunar Lake, Arrow Lake, and Arrow Lake processors.

Intel Foundry has its hopes set on 18A, its next process node. This is the next big leap in manufacturing technology. Intel is also integrating its mobile, energy-efficient chip designs, which are fighting Arm and Qualcomm on the desktop, with Arrow Lake, later this year. If it can turn this around with high yields and good performance, as well as no more chip-breaking bug, it may be able to get out of trouble. There are a lot ifs that hang over its head at the moment.