Silicon Saxony

The latest figures for the semiconductor industry, released at the beginning of this week, were bleak.

The Semiconductor Industry Association (SIA) in San Jose, California, said on Monday, Dec. 1, that global sales of computer chips dropped around two percent between September and October, from $23 billion to $22.5 billion (18.2 billion euros to 17.8 billion euros).

“The slowdown in worldwide semiconductor sales that became evident in September continued in October,” said SIA President George Scalise in a press release. “The worldwide financial turmoil is expected to continue to impact demand for semiconductors as we enter 2009."

Some forecasts predict the industry will shrink by as much as one-fifth next year, and many of the world's largest computer-chip manufacturers -- including Samsung and Toshiba -- are reporting drops in profits of up to 30 percent.

"Amidst the constant bad economic news, orders…have practically come to a standstill," analyst Dale Ford of the market researching company iSuppli told Reuters news agency. "From the perspective of memory-chip makers, 2008 can only be described as catastrophic."

One region being hit hard is the eastern German state of Saxony. Perennially the most prosperous area of the formerly communist part of the country, the technology-driven region is struggling to cope with the slowdown in one of its main industries.

Depression in Dresden

The metropolitan Dresden area is Europe's largest micro-electronic center. Some 1,200 firms with more than 4,000 employees are located in "Silicon Saxony."

One of the biggest names in the industry, Infineon Dresden, has already slashed 650 jobs. The company is trying to save the remaining 1,700 by moving away from chips for personal computers and toward semiconductors for things like credit cards, mobile phones and car airbags.

"Of course we're affected by the current crisis," company spokeswoman Diana Heuer told DW-RADIO. "Especially in terms of automotive products, we're feeling it. But in the long term we think that we've settled in the right markets."

But there's little reason for even such guarded optimism at Infineon subsidiary Qimonda, which specialized in chips for computers.

With orders falling through the floor, the company has no choice but to cut back drastically or disappear.

"The plan is to eliminate 950 jobs at our Dresden location," Qimonda spokeswoman Anja Berger told DW-RADIO. "On the one hand, we'll be closing our last-stage chip-baking facility, and on the other, we're reducing our research and development facilities."

Qimonda is also looking for outside help.

Sink or swim

Qimonda reckons 500 million euros in guarantees are required to ensure the company's continued existence. But with parent company Infineon Dresden itself going through hard times, management is turning to the state.

Infineon would like to reduce its stock holdings in Qimonda by some 30 percent, from 77.5 percent to less than a half. But the state of Saxony is reticent to swap what are effectively loans for shares.

"I think the company itself has to take responsibility, before calling on the state," Saxony Economics Minister Thomas Jurk told DW-RADIO. "And to my ears, the calls have been too loud -- you have to remember that this market has been having problems for quite some time."

Jurk said that his ministry was willing, in principle, to invest in businesses to save jobs, but that he wanted to see whether the company showed signs of finding long-term solutions.

"We don't want any quick fixes only to be left with a pile of rubble a few months down the road," Jurk said.

Qimonda says it is trying to develop markets that are less volatile. But there's no guarantee they'll be able to do so quickly enough to avoid going under.