Silicon Saxony: Chip Factory Brings High-Tech to Dresden

Dresden's new chip factory, to be named Fab 36, is California-based Advanced Micro Devices' second plant in this city of Baroque splendor and is expected to create some 1,000 jobs over the next three years. AMD's decision to invest in Dresden, located in the state of Saxony, further buffs the region's reputation as a high-tech magnet and economic success story, in sharp contrast to the rest of eastern Germany.

The AMD plant, scheduled to open in 2006, will be "the most advanced of its type in the world," according to the company, which is the main rival to Intel in supplying computer chips for PCs. The factory will manufacture the 300-millimeter silicon wafers used in semiconductor chips, turning out around 13,000 wafers per month when operations begin.

Fab 36 is AMD's second plant in this city on the river Elbe. The first, Fab 30, another wafer-production facility, went into operation in 2000 and produced 5,000 wafers a week.

Chancellor Gerhard Schröder, who attended the groundbreaking ceremony on Sunday, said the AMD investment -- one of the biggest in eastern Germany in a decade -- highlighted Dresden as "the leading location for semiconductor manufacturing in Europe."

Several other chipmakers, such as Infineon and ZMD have also set up shop in Dresden, and given rise to the region's moniker, "Silicon Saxony."

A bright spot in the East

Dresden's success is made all the more striking compared to most of the rest of the former East Germany, which is caught in a downward spiral of economic malaise.

The region, which became a part of the Federal Republic of Germany in 1990, was imbued with a heady sense of optimism in the years just after reunification. But since then, the region has been plagued with high unemployment and a rash of industry bankruptcies. Even though a massive program of reconstruction was begun to bring the creaking eastern infrastructure up to western standards, the region has failed to blossom as then-chancellor Helmut Kohl once promised.

Unemployment in eastern Germany is over 18 percent, almost twice that of the western part of the country. Growth rates have been negative and the region has been shrinking in population as residents move west in search of jobs. School enrollment is declining, apartment blocks in many towns stand empty, waiting not for some expected upturn, but for the wrecking ball.

Other eastern regions have taken stabs at high-profile, high-tech projects, but several have turned into high-profile failures. A custom chip factory that was tauted as a rejuvenator for the suffering economy in the eastern state of Brandenburg declared bankruptcy late last year.

Dresden, however, has bucked the trend, partly thanks to its history under communism. In East Germany, the city was already a center of high-tech, since the University of Dresden was the country's leading technology school. Saxony was also the center of microelectronic production, employing some 30,000 people before the Berlin Wall fell. The technology and manufacturing facilities might have been behind the west, but the skills were top notch. The city has benefited from that base, which has acted as a magnet for companies in need of highly skilled labor.

Government role

The state and federal governments have also played a key role in attractving companies to the region with a wide range of subsidies and incentives.

For the new AMD chip factory, the state of Saxony invested $200 million. The pot was sweetened further with the $540 million infusion from the federal government, part of its "Eastern Reconstruction" funding program. A banking consortium headed by Dresdner Bank came forward with another $700 million in guaranteed loans from.

Hertor Ruiz, chief executive of AMD (photo), said the $540 million in subsidies and loans were a "significant consideration" in deciding to come to Dresden.

In remarks that went against prevailing current opinion in Germany, Ruiz praised the country as a business location. While many business leaders and economists bemoan the nation's business environment, complaining of high taxes and labor costs that drive companies to set up shop abroad, Ruiz said concerns over foreign investment had been "politicized."

"I'm puzzled why people see Germany so negatively," he told reporters. "It is certainly not the place to build a tennis show factory, but in high-tech there are many factors in its favor." Those included, he added, well-trained personnel, high-quality research facilities and a good infrastructure.