Intel postpones building chip factory in Germany's Magdeburg

US chip-maker Intel is postponing the construction of a factory in the German city of Magdeburg, company boss Pat Gelsinger said on Monday.

The project is expected to be delayed by around two years, Gelsinger said.

Intel was planning to build two chip factories in Saxony-Anhalt near Berlin, creating some 3,000 jobs, with a groundbreaking ceremony planned for this year.

It was an investment estimated at around €30 billion ($33 billion) and last year, the German government promised state aid worth €9.9 billion for the settlement.

But Intel is struggling with losses and launched a cost-saving programme earlier this year.

The company announced in August that it was planning on reducing its workforce by 15% as part of a cost-cutting programme worth billions of dollars.

"We must continue acting with urgency to create a more competitive cost structure and deliver the $10B in savings target we announced last month," Gelsinger said in a press release and letter to employees.

"We will pause our projects in Poland and Germany by approximately two years based on anticipated market demand," he said.

Just months ago, Gelsinger said that the most modern production processes were to be used in Magdeburg, with which Intel wants to catch up with more successful competitors.

Production was expected to begin in 2027 or 2028.

But in the last quarter alone, the group racked up a billion-dollar loss – and analysts say results are likely to stay in the red for some time yet.

At the same time, Intel confirmed investments in new plants in the US domestic market and is developing new chips with Amazon's cloud division.

A first building permit for the factories in Magdeburg had already been issued a few weeks ago, following a review of an approximately 2,000-page building application and a hearing procedure with associations and municipalities that lasted several months.

The European Commission still had to agree to the funding from the German government but state representatives were optimistic the EU would approve the aid by year end of the year, after which construction would begin.

Gelsinger's strategy is to make Intel more of a contract manufacturer for other chip developers. He aims for the company to master the most advanced production processes in order to compete against established producers such as Taiwan's TSMC. The Magdeburg plant was part of these plans.

Intel once dominated the chip industry but fell behind as it lost the battle for a place in the smartphone market. Intel sought to transfer its strength in the PC business to mobile devices but lost out to rivals such as Qualcomm and TSMC. Intel is also concerned about the PC market.

Meanwhile, Intel has seen one-time smaller rival Nvidia become one of the industry's hottest names thanks to chip systems for training artificial intelligence. Intel is also moving into this market but remains far behind Nvidia.