Samsung and Intel's fab costs increase by billions of dollars due to inflation

All leading chipmakers announced plans to build new fabs to meet future demand for semiconductors amid severe shortages in 2020-2022. Inflation spiraled, caused first by the pandemic and then by the Russian war against Ukraine, increasing Intel and Samsung's fab costs by billions of dollars.

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Last year, Intel announced plans to establish a new manufacturing facility in Magdeburg, Germany, requiring investments of $18.7 billion and state aid of $7.2 billion. Due to high inflation, increasing materials costs, and high energy prices, the company now estimates that the initial investment would be around $31.675 billion (€30 billion). Trade Algo reported last week that the state would need to provide $4.223 billion - $5.279 billion ($4 billion - €5 billion) more. 

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Because of increased fab costs, Intel is renegotiating the support package with the German authorities. However, the exact amounts remain unclear.

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"Global economic disruption has resulted in higher costs," Intel says in a statement. “The dialogue with the federal government has been constructive in addressing the cost gap with other locations and making the project globally competitive."

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By the end of this decade, Intel's fab in Germany will be one of the world's most advanced semiconductor facilities. Intel Foundry Service will likely use sub 1.8nm fabrication processes (post Intel 18A) to manufacture chips for Intel and its customers. 

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Fab costs have exceeded Intel's expectations for a number of companies. Samsung estimates that its initial investments in its upcoming fab near Taylor, Texas, will total over $25 billion, up more than $8 billion from initial projections, according to a Reuters report citing three sources. 

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Although wafer fabrication equipment accounts for the majority of fab costs, these tools are gradually becoming more expensive, the Taylor, Texas, fab got more expensive because of construction costs. Samsung expects further cost increases, so it wants to build the fab sooner rather than later.

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"The construction cost increases account for about 80% of the cost increase," one of the sources said. “It has become more expensive to buy the materials.”

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Samsung plans to complete the construction of its fab in Taylor, Texas, by the end of 2023 or the beginning of 2024. Using its 3nm and 4nm-class process technologies, the company will begin making chips at the production facility in 2024 - 2025.