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Broadcom has halted its plan to build a billion-dollar chip
On July 14th, Broadcom, the US chip giant, officially confirmed the termination of its original plan to invest approximately 1 billion US dollars to build a semiconductor back-end packaging and testing factory in Spain.
Since its public announcement in July 2023, this project was once regarded by the EU and the Spanish government as a large-scale packaging and testing base unique to Europe. However, it has now been put on hold due to the breakdown of negotiations between the two sides, marking a setback for the EU's blueprint to expand its domestic chip production capacity.
Spain's plan to build a billion-dollar chip factory has been halted
Public information shows that in July 2023, Broadcom CEO Charlie Cavas announced that in response to the EU's Chips Act, the company plans to build a factory in Spain dedicated to advanced packaging and testing, with an estimated investment of 1 billion US dollars. If completed, it will become the first back-end facility on the European continent. The Spanish government originally planned to allocate 12 billion euros from the EU's post-COVID-19 recovery fund to subsidize the semiconductor industry, with part of the funds going to the Broadcom project.
According to foreign media reports, the negotiations have been at a standstill in the past few months, with the core contradictions concentrated in three aspects.
First, the pace of subsidy distribution. Broadcom has demanded that the Spanish government first release large capital expenditure subsidies for the purchase of equipment and infrastructure. However, the Spanish Ministry of Finance insisted on disbursement funds in batches according to construction milestones, resulting in differences in cash flow arrangements.
Second, environmental impact assessment and land use permit. The candidate site for the factory is located in the industrial area of Catalonia. The local government has imposed additional restrictions on water usage and energy consumption indicators, and the approval period may be extended to 18 months, exceeding the assumptions of Broadcom's internal investment recovery model.
Third, political factors. In the second half of 2024, Spain will hold an early general election. The new minister of Industry needs to re-evaluate the incentive package promised by his predecessor. Meanwhile, there were personnel adjustments at the top level of the US Department of Commerce.
Due to the accumulation of multiple factors, the two sides ultimately failed to bridge the gap and the negotiations officially broke down.
Broadcom has made a global strategic adjustment, strengthening cooperation in high-end packaging and software transformation
Currently, Broadcom is accelerating the expansion of its existing bases in Asia. While hitting the "pause button" in the manufacturing sector in Europe, it is continuously deepening its collaboration with top foundries and packaging and testing partners in high-end packaging to ensure the supply of its high-value AI accelerators and network chips.
According to foreign media reports, Broadcom has promptly initiated an assessment of the expansion of its existing packaging and testing bases in Malaysia and Vietnam. Broadcom is expected to invest an additional approximately 500 to 700 million US dollars by 2026 to make up for the capacity gap caused by the cancellation of the project in Spain.
While expanding its production capacity, Broadcom is also strengthening its cooperation with leading global semiconductor partners in high-end packaging technology. It is understood that Broadcom will deepen its collaboration with TSMC and ASE in advanced 2.5D packaging and Chiplet (small chip) technologies. This move is crucial for Broadcom, especially for its growing AI accelerator and network chip business. These high-value chips have extremely high requirements for packaging technology. 2.5D packaging and Chiplet technology can effectively enhance the integration, performance and power efficiency of the chips.
In sharp contrast to its expansion in Asia, Broadcom's investment attitude towards the manufacturing sector in Europe has become more conservative. It is reported that Broadcom will not make any new manufacturing investments in Europe in the short term. For its layout in Europe, Broadcom will only retain its design center in Sophia Antipolis, France, and its wireless R&D department in Munich, Germany.
It is worth noting that Broadcom's current adjustment to its manufacturing strategy is closely linked to the company's overall strategic transformation in recent years. Through a series of large-scale acquisitions, especially the purchase of VMware, Broadcom is accelerating its transformation from a traditional semiconductor hardware company to a comprehensive technology company providing software and solutions.
This transformation indicates that Broadcom's investment focus and capital allocation are undergoing internal adjustments. Compared with capital-intensive and long-payback semiconductor manufacturing, Broadcom may allocate more resources and energy to its new strategic growth points - software, solutions, and core chip design and high-value packaging partnerships that can quickly support the development of these businesses.