The GDR made Dresden its centre for electronics. Since the fall of the Berlin Wall, the state of Saxony is trying to keep that plan going.
Just four years after its invention by scientists at Bell Labs and two years after the country came into being, the ironically named German Democratic Republic (GDR) decided it would invest in R&D for semiconductors. East Germany was by no means slow to adopt the transistor. Sony, by comparison, would not start making transistors until three years later.
Despite this head start, the GDR-based technology lagged behind the West by five to ten years by the time the Berlin Wall fell. In reality, it fell far behind long before the 1980s.
The ruling party made a poster for its final Party Day, held in 1986, that showed a female engineer working on a massive computer. The slogan was "Wir haben die Chance genutzt" - or "we have taken the opportunity". In some respects the poster was spot on: in a time when the personal computer was the future, the GDR ruling party's rhetoric was wedded to an image of technology that was resolutely stuck in the past.
With flagship products such as DRAM, Dresden-based ZMD pulled out all the stops to keep up with the West. It reported its first 1Mb DRAM in 1987, as the first devices moved into production in US and Japanese fabs. To make sure ZMD could do it, the ruling party allocated 40 per cent of the entire R&D budget for three years to the 1Mb DRAM project as ZMD was unable to buy in a lot of the parts needed to make the devices from the West.
According to calculations made by the Ministry for State Security, later made public, it cost 534 marks to make a single 256kb chip in 1989 but it could not sell them for more than 17 marks.
Volume production of the 1Mb parts could not start until the Berlin Wall had come down. But with the restrictions on imports relaxed, East German DRAM manufacture was effectively stopped in its tracks.
Political considerations hindered development in many ways. Informants from the Stasi infiltrated many of the high-technology companies working in the GDR in the belief that the country's poor record in maintaining parity with the West was the result of deliberate sabotage and that political conformity in these centres of technology was paramount. Weeding out unreliable elements probably did more damage than any would-be saboteur could ever manage.
As early as 1956, the head of the WBN national research institute Mattias Falter had to answer for his team's poor progress. Transistors were still not available for TVs, radios and communications according to Dolores Augustine, author of 'Red Prometheus', an account of technological development in the GDR.
Falter complained that the country was cut off from work being performed over the Wall and, ironically, from similar research conducted in the USSR. Falter, eventually, was fired in 1964, by which time the GDR was considered to be ten years behind the West.
A veteran of the Soviet atomic bomb programme, Werner Hartmann formed the Arbeitsstelle für Molekularelek-tronik Dresden (AMD) in 1955, a company that was later renamed to Zentrum Mikroelktronik Dresden (ZMD) at roughly the same time that Advanced Micro Devices was founded in the US.
ZMD would become GDR's main suppplier of semiconductors. But there was a problem. Hartmann had the nasty habit of reading foreign scientific journals. So, despite his contribution to the Soviet atomic-weapons programme, he came under suspicion. Ultimately, in 1974, Hartmann was removed from his position, moved to a junior role at a Freiburg silicon wafer maker and threatened with a trial. He retired three years later.
According to the German Office of the Federal Commissioner (BStU), as many as 500 scientists and technologists were persecuted by the Stasi, helping to maintain the GDR's second-class status as a semiconductor centre.
Reunification brings turmoil
After German reunification, the decision by Chancellor Helmut Kohl to maintain parity between the Ostmark and the Deutschemark hammered East German businesses - among them ZMD - already weakened by decades of ideologically driven decisions. But the company survived, with a new company being formed out of the ashes of the old, ultimately becoming a public 'AG' corporation in 2001. Outcompeted in digital technology, the new ZMD decided to focus on mixed-signal products, which do not need advanced process equipment.
In 2007, ZMD decided to cut ties with manufacturing, selling its foundry operation, ZFoundry, to X-Fab Semiconductor Foundries based in Erfurt approximately 150km to the west along a technology corridor that includes the towns of Chemnitz, Freiberg and Jena. X-Fab was itself a survivor of former fabs built under the GDR regime, first incorporating as Thesys when US-based LSI Logic took a major stake. The company was later sold to Elex, then the majority owner of automotive chipmaker Melexis.
VLSI Technology, a competitor to ASIC supplier LSI later bought by Philips Electronics, had planned to do a similar deal over ZMD but backed out in 1992. Two German banks stepped in, laying off 40 per cent of the 1,000-strong ZMD workforce. Before the fall of the Berlin Wall, ZMD employed more than 3,000.
Realising that unemployment could become a lasting problem in the former East German Länder - the administrative regions that collectively form the federal republic - the government set about encouraging industrial giants to set up manufacturing centres there. Manufacturing employment in Saxony slumped in the years that followed reunification. Some 700,000 people were employed in the region at the start of 1991. By the start of 1993, this number had slumped to 250,000. In Dresden alone, according to a study by the Leipzig based Academy for Spatial Research and Planning (ARL), manufacturing employment collapsed in 1991 and 1992, with more than 80 per cent of its 30,000 available positions disappearing.
The first company to move in was Siemens, encouraged by the government to build its flagship 200mm fab in the former East Germany a couple of years after reunification.
Texas Instruments was interested in setting up a fab in Dresden but backed out, believing that Siemens would snap up most of the local supply of experienced process engineers.
The Saxony regional government provided Siemens with a substantial subsidy roughly equivalent to a quarter of the building costs for the fab's first phase. Rather than a brownfield site, Siemens controversially opted for a former military location in woodland to the north of the city. But environmentalists lost a court case aimed at stopping the development and, by 1995, the fab had been built. Siemens Microelectronics Centre Dresden produced its first 16Mb DRAM. By 1998, the fab was turning out 64Mb parts with 256Mb devices following in 1999 as the chipmaking part was being split off from Siemens into Infineon Technologies. Easter Germany had caught up with the rest of the world in memory production.
US-based Advanced Micro Devices (AMD) originally planned to follow Intel into Ireland, which had opened its first fab at Leixlip close to Dublin early in the 1990s. But the company was wooed by the Saxony government and AMD changed its plan, picking Dresden because of its more advanced infrastructure as the site for its first, and only, fab cluster outside the US.
Silicon Saxony picked up its label in 1998 after Time journalist Richard Hornick visited the AMD fab in Dresden to find out why the US company had decided on its location.
The typical, ebullient answer from then CEO Jerry Sanders was: "It's all about people."
The Silicon Saxony group believe this not only refers to the trained process engineers who were already in the area thanks to previous investments but the way in which Saxony's officials made sure AMD was welcome, a pattern that has characterised the region's approach to inward investment ever since.
Like Siemens, AMD chose a rural location and managed to pick up a number of process engineers who had been laid off since reunification.
Although subsidies are often seen as a major reason for the two plants to be located near the city, Klaus-Heiner Röhl of the Technical University of Dresden argued in a 2000 paper that the decisions "cannot be explained with massive public funding alone as other locations such as Scotland offered financial subsidies on a similar scale". Although substantial, the subsidies were limited by EU competition policy to be no more than a third of costs.
Röhl, added: "A positive factor seems to be the high acceptance of large-scale investments in the population." One of the key factors to emerge in interviews with the two companies by social scientists was the local education system, which had a heavy focus on engineering.
By 2003, some 10,000 jobs had been created in Dresden around microelectronics, far surpassing the employment that state-owned ZMD offered 20 years previously. The bulk of those jobs were at AMD and Infineon, both of which decided to build follow-on fabs. Government subsidies amounted to €1.2bn but these, according to Arnd Weber of the Karlsruhe Research Centre, would be far outweighed by tax receipts by the end of the decade.
Threat from Albany and Arabian Gulf
By 2006, Saxony as a region had the highest per capita income of the new Länder. Close to 300 firms now operate under the umbrella of Silicon Saxony, which campaigns for semiconductor and related companies to set up research and production in the region. However, its growth has been threatened not just by the recent recession but by the aggressiveness with which other regions are pursuing fab investments.
The state of New York offered AMD subsidies worth some $1bn to build a new fab in Albany. Apparently willing to match this level of subsidy, the Saxony government has lobbied the EU to lift its cap on grants, which was originally placed to prevent EU states from competing with each other for jobs using state subsidies.
AMD's manufacturing operations overall looked in jeopardy as the company tried to find a way out of its massive capital spending with a move towards using foundry suppliers. A deal with backers from Abu Dhabi to form GlobalFoundries, coupled with the decision by STMicroelectronics to shift some of its foundry production to the company, has shored up the position of the former AMD fabs in Dresden, as well as the one under construction in Albany. However, questions linger over the long-term aims - whether production will ultimately shift to the Gulf of Arabia - and in the short term over the amount of capital investment that GlobalFoundries will need to make, and how much of that AMD will provide, particularly with the decision by GlobalFoundries to absorb the Singapore fab operator Chartered Semiconductor Manufacturing.
Over the summer, the workers at the GlobalFoundries plants in Dresden were working short weeks to deal with the effects of the recession. But bigger problems face the staff of Qimonda, the memory subsidiary that Infineon is attempting to spin out as an independent company.
Qimonda filed for insolvency protection earlier in the year when existing credit lines ran out. Saxony said it would provide €150m short-term financing if Infineon matched those funds, but the parent company, which retains some of the manufacturing at Dresden, could not provide the cash. Six hundred staff had already been laid off but the first action of the insolvency committee was to shut down production at Dresden rather than sell even more parts into a memory glut.
Because so many worked at the company's plants, the situation at Qimonda provides a bleak outlook for Dresden as a semiconductor cluster. The Albany development aside, most of the investment in fabs is going into Asia, particularly Taiwan and mainland China. According to the European Semiconductor Industry Association (ESIA), semiconductor manufacturing is twice as profitable in Asia than in Europe or North America. Although capital costs are high, labour costs still account for much of the difference, largely because the gap is so large between per-hour labour prices. For 2010, the ESIA projected that per-hour costs in Germany would be more than €40 versus €8.60 in South Korea and €3.60 in China.
However, Silicon Saxony has pursued other avenues in related technologies such as plastic and flexible electronics and solar power. Venture capitalist Hermann Hauser chided regional investment agencies in the UK several years ago for their lacklustre support for a proposed Plastic Logic plant in the country. Saxony won the contest, which included locations in Asia, to host the plant, located between AMD and the airport. Plants on the roof spell out the company's name for people to see as aircraft come into land.
Solar power may provide a larger opportunity for Dresden as a manufacturing cluster. Plastic displays are relatively light and easy to ship. Asian manufacturers are already lining up TVs based on organic LEDs printed using similar techniques to those employed by Plastic Logic. Although Japan is already a major producer of solar panels, their size and bulk makes them good candidates for local production if, in other factors, local manufacturing is relatively uncompetitive.
Saxony already has photovoltaics manufacturing through SolarWorld, which has a plant at Freiberg. The company recently topped out its new fab, which is expected to cost €350m in total and will employ more than 400 people when completed. The so-called Solar Valley of Germany threads through Saxony, Saxony-Anhalt and Thuringia. By 2008, 18 per cent of all solar cells made worldwide were manufactured in Central Germany. The German government wants to be the leading provider of solar panels in the years to come.
Ten years from now, we may be talking about Solar Saxony rather than Silicon.