By Supantha Mukherjee, Foo Yun Chee and Jane Lanhee Lee

STOCKHOLM/BRUSSELS/SAN FRANCISCO (Reuters) – Intel has picked Germany as the site for a huge new chipmaking complex, giving the first details of a $88 billion investment drive across Europe, which is striving to cut its reliance on imports and ease a supply crunch for manufacturers.

The plan is the latest big investment announcement by a major semiconductor maker as the industry tries to catch up with a boom in demand for chips used in everything from smartphones to cars, though there will be no quick fix as the new German plants won’t come online until 2027.

The U.S. chipmaker is spreading its investments in Europe around half a dozen countries, including boosting its existing factory in Ireland, setting up a design and research facility in France, and a packaging and assembly site in Italy.

The initial spending will total 33 billion euros ($36 billion), including 17 billion euros in Germany, where the auto industry is likely to be a prime customer for cutting-edge chips that could use technology as small as 2-nanometers.

German automaker Volkswagen highlighted the pain caused by chip shortages on Tuesday, saying it sold 2 million fewer cars than planned last year due to the issue.

Intel’s announcement comes after the European Commission last month set out plans to encourage chip manufacturing in the European Union, with proposed new legislation to ease state aid rules for chip factories and enable $17 billion in additional public and private investment.

Chipmakers are looking to build more factories to make advanced chips for use in premium smartphones like Apple’s latest iPhones that use chips with 5-nanometer technology. A nanometer is just several atoms wide.

Bernstein Research analyst Stacy Rasgon was confident Intel could manage the roll out of investments to match demand going forward, and was positive on expanding with government subsidies.

“(Intel) is using capacity as a strategic weapon … Part of the strategy right now is to go around the world and beg for money,” Rasgon said. “If there’s any time to run around the world begging for money to build semiconductor manufacturing facilities now is the time.”

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Germany has come out as the big winner by cornering the bulk of Intel’s investment but CEO Pat Gelsinger declined to say the amount of state aid the company is getting from the country.

Intel will build two factories in Magdeburg, Germany, creating 7,000 construction jobs, 3,000 permanent jobs at the company, and tens of thousands of additional jobs across suppliers and partners, it said.

Gelsinger said Intel wants to spend the remaining money from its planned 80 billion euro investment over the next 10 years to build out the complete Magdeburg site and further develop the sites in Italy and France.

The company will invest an additional 12 billion euros in an existing Irish facility which will take its total investment in Ireland to more than 30 billion euros.

It is also in talks with Italy for a chip assembly and packaging plant for a potential investment of up to 4.5 billion euros, expected to start operations between 2025 and 2027.

In France, Intel plans to build its new European research hub, creating 1,000 new high-tech jobs.

The company will also increase its lab space in Poland and plans to establish joint labs with the Barcelona Supercomputing Center in Spain for advanced computing.

Gelsinger had announced plans in September to spend $88 billion in Europe over the next decade, and the choice of sites comes after some EU governments including Italy offered big incentives to try and woo the chipmaker to invest in their countries.

Spreading its factories around different locations could help the company get more subsidies from different countries.

But Intel will have to negotiate with each European country where it’s locating facilities for state aid, European Industry Commissioner Thierry Breton told journalists.

He also said the Commission was talking with other chipmakers and hoping to make similar announcements in the coming months, but did not provide details.

($1 = 0.9098 euro) (This story was refiled to replace the old company logo)

(Reporting by Supantha Mukherjee in Stockholm, Foo Yun Chee in Brussels, Jane Lanhee Lee in San Francisco and Nadine Schimroszik in Berlin; Editing by Josephine Mason and Mark Potter)

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