1. The cost difference between 14mm2 and 7mm2 is a whole new fab at twice the density (assuming transistor count remains the same). Asset costs really matter to Intel.

2. If the constraint on the number of packages you can sell is the number of chips you can produce, then the packaging cost of the chip is not so relevant (assuming packaging is not a constraint on production). If you can halve the chip area on the same production node, you can double production of packages, which can make a huge difference to profits (assuming Intel is a high margin business with high demand and that demand elasticity is in their favour etcetera).

Disclaimer: I am not in the industry, but what you say just seems wrong without even arguing that the cost of the silicon for Intel dominates packaging costs.

Intels 14nm fabs and tooling are now fully amortized and yields are going to be very much higher than 7nm/5nm nodes.

193i steppers are also dirt cheap, and most of their old fabs can also be modified for 14nm/10nm production, whereas EUV tools are 180 tonne behemoths that require overhead cranes and/or physical disassembly of the plant to move.

I was surprised that Intel hasn’t seemed to have bought more of the EUV machines from after they helped fund their development. Do you have any insights?

You're assuming that the cost of a fab (machinery, labour, whatever) is proportional to wafer size rather than transistor count. That seems pretty dubious.

The difference isn't in material usage. Larger dice translate into lower yield per wafer and less throughput for a fab.