U.S. Investor Poised to Build Semiconductor Plant in Dresden

If a German parliament committee gives the green light to the project by agreeing on a loan guarantee of some €336 million ($397 million), the groundbreaking ceremony for Dresden's new factory could be held as early as Thursday. This will be the first new major chip plant in Europe in several years.

According to Germany daily Handelsblatt, AMD, the world's second largest PC manufacturer after Intel, will be investing over €2 billion in the new plant, the third largest single investment in eastern Germany since the country's unification in 1990.

Last week, industry sources revealed that AMD had short-listed East Fishkill in New York and the Saxon city of Dresden -- where unemployment is currently hovering at around 13 percent -- as possible locations for a new chip plant. A spokesman for AMD in Germany confirmed at the weekend the company was holding talks about a new plant but declined to give details.

According to industry sources, the federal and state governments will jointly guarantee up to 80 percent of a €700 million loan package for the new plant, while the U.S. chip maker can also count on further grants of more than €100 million.

Reaping benefits

AMD already employs some 2,000 people in its existing, ultra-modern Dresden plant, which opened in 1996 to the tune of €2.2 billion -- €400 million of which was provided by the state of Saxony with a minimum of red tape.

Dresden is also home to an advanced memory chip factory of German chip maker Infineon Technologies, as well as an Infineon and Dupont Photomasks factory. The new AMD plant will create several hundred jobs in the depressed Eastern state and consolidate Dresden's standing as Europe's main center for microelectronics, a reputation first established by East Germany's ruling SED party during the Communist years with companies such as Robotron Dresden.

Experts say the decision may well be thanks to AMD's positive track record with the Saxon authorities and the success of the existing plant, which also enjoys a constructive working relationship with Dresden's internationally renowned Technical University. According to Handelsblatt, AMD Ceo Hector Ruiz recently described the existing plant as a "phenomenal success," adding that "the factory has the highest productivity of any AMD factory ever, as well delivering excellent production quality."

Still competitive

AMD's decision shows that despite high taxation and a costly social system, Germany is still a competitive location for investors. Since the early 1990s, nearly 2,000 foreign companies from over 40 countries have invested in eastern Germany, of which 300 are from the United States, including Dow Chemical, Motorola, Coca-Cola and General Motors. Other foreign investors include France's Vivendi and TotalFinaElf, as well as Japan's Sony and Fujitsu.

The AMD factories in Dresden represent a success story that contrasts starkly with the fate of a similar chip factory still under construction in the struggling East German state of Brandenburg. The project's main investor, the Emirate of Dubai, has failed to hand over funds and the plant is on hold until federal and state officials decide whether or not to act as guarantors.

The microelectronics industry may be flourishing in the Dresden region, but the problems in Frankfurt (Oder) show that clusters have yet to emerge in Eastern Germany on a larger scale. And according to the regional newspaper Sächsische Zeitung, the good news for Dresden now almost certainly spells bad news for Frankfurt (Oder) in terms of state subsidies.