Intel recently announced plans to put two leading edge semiconductor fabs in the Eastern
German city of Magdeburg.
A silicon junction - pending government subsidies of course.
It's a great thing for this city, which has long suffered from its share of heavy industry
decline.
If you want a great overview of the topic, TechTechPotato has a good video that I highly
recommend.
The British accent adds a dash of class to the whole thing.
I know that Germany isn't in Asia, but I have a special fondness for this particular subject.
So I felt maybe it would be worth doing a little video about the matter - and what it
means specifically for the people in this city.
## Magdeburg
Magdeburg is the capital of Saxony-Anhalt, a state within Germany.
The city has long been a heavy industrial center.
During World War II, the area's factories produced tanks, jet engines, and ammunition.
This made the city a war target.
Things culminated in an Allied air raid in 1945 that leveled up to 60% of the entire
city.
The city's population shrank from a peak of 346,000 to just half that a few years later.
After losing the war, Germany was split into the Federal Republic of Germany or West Germany,
the German Democratic Republic or East Germany, and Berlin.
Magdeburg's economic specialty within East Germany was that of heavy machinery and large-scale
agriculture.
The city's companies were reorganized into industrial conglomerates called "Combines".
One example is Ernst Thalmann or SKET, which ran a number of companies producing heavy
equipment like air separators and two-wheeled scooters.
In 1989, the company owned 18 divisions and employed 30,000.
Notably in 1988, SKET produced a home computer kit - the HCX.
It was basically a rip-off of the British Sinclair ZX Spectrum and never went into full
production, but nevertheless an interesting chapter in the city's economic history.
Anyway, plagued by chronic shortages and unproductive labor, the East German economy gradually deteriorated
throughout the 1980s along with the Soviet Union itself.
## East and West Germany
In 1990, the two Germanys reunified.
This caused massive upheaval across the German economy.
The two sides had talked of friendship and a new, truly reunified nation.
But the economic and political reality was that it was a takeover.
West over East.
A supposed victory of capitalism over socialism.
Reunification greatly disrupted the East German economy.
The East German mark was converted one to one with the West German mark.
As a result, East German products became uncompetitive against West German products.
This heavily damaged local manufacturing industries - especially textile, clothing, agriculture
and other light manufacturing industries.
Coming at the same time as the deconstruction of the East German welfare state, it caused
a lot of pain.
Magdeburg did not manage to avoid this pain.
The city had 167,000 employed workers in 1990.
Only half of them still had jobs by 1999.
## Attempting Revitalization
Many of the city's young people left for West Germany and its major cities.
In 1989, nearly 288,000 people lived in the city.
The most recent population count shows just 235,000 as of 2020.
The city's average age rose from 38 to 45.
Certain areas are projected to see population declines in the mid-twenties percent.
This alarming shrinkage has escalating negative social trends.
It saps the city's identity and leaves behind decrepit homes and buildings.
From 2002 to 2009, the city demolished or partially demolished 8,248 units of housing.
The latter situation being the dismantling of some buildings' upper floors.
The city has been trying to reverse this migration trend while retaining its unique cultural
identity.
They have attempted several initiatives to attract various "new" manufacturing industries
like solar and medicine.
And these efforts have seen some success.
The city hosts a couple wind turbine manufacturers as well as some disposal and recycling companies.
Intel's entry into the city - if completed successfully - starts a new chapter in the
city's rejuvenation.
## Why Magdeburg?
Livability
Magdeburg competed with other locations within Germany and Europe for this investment.
Dresden in particular is another German city with a semiconductor heritage dating back
to the 60s.
The city already hosts a GlobalFoundries fab, a number of high-tech engineering companies,
and some supporting infrastructure.
I've wanted to do a video about it for a while.
Today, one out of every three EU-made microchips comes out of Dresden.
Thus, it seemed like the most natural placement.
In the end however, Intel seemed to prefer Magdeburg - I reckon for a couple major reasons.
One would be housing and livability.
Like many other cities suffering from de-industrialization, Magdeburg has been working hard to make itself
a green and livable place - a "Capital of Culture".
The city has been redeveloping commercial and industrial space into residential or mixed-used
spaces.
It's opened up the area and given it an airy feel.
The War annihilated much of the city's historical heritage, but also gave it a blank slate to
start over.
It has some weird architecture ...
Things like the Green Cathedral of Magdeburg, one of the last architectural works by artist-architect
Friedensreich Hundertwasser.
I personally feel that the building is more pink than green, but there are some trees
up on the roof so I guess it's alright.
Anyway, as I mentioned before, the city's depopulation trends have left it with a surplus
of housing.
This is older data released in 2017, but apartment search portal Immowelt ranked Magdeburg as
having some of the cheapest apartment rents in Germany.
A single apartment in 2017 on average cost about 220 euro a month to rent.
This is in comparison to 410 euros in Berlin or 270 euros in Dresden.
Intel's entry and expansion likely will affect local housing prices.
TSMC's new fabs in Tainan have caused housing prices there to rise nearly 50% from 2014
to 2020.
For better or worse depending on who you ask.
## Why Magdeburg?
Talents
More important than livability, however, would be the availability of technical talent.
These would be centered on the city's two universities: The Otto von Guericke University
Magdeburg - thankfully shortened to OvGU - and the Magdeburg-Stendal University of Applied
Sciences.
OvGU - apparently named after a former mayor in the 1600s - is one of Germany's youngest
universities and enrolls about 14,000 students.
I noticed that they have an Electrical Engineering and Information Technology program awarding
Bachelors and Masters.
2018 statistics show that this department enrolls about 900 students in total, which
is quite substantial.
TSMC had similar reasons for choosing Tainan as its first manufacturing hub outside of
Hsinchu in the late 1990s.
Intel is likely to fill hundreds of skilled jobs with local residents.
It has been known for working directly with universities, community colleges, and secondary
schools to meet its recruitment needs.
For instance, they worked with Arizona schools to offer 2-year degrees in semiconductor manufacturing/technology,
circuit design, and facility maintenance.
Graduates often land jobs as technicians.
Intel immediately becomes the city's most prominent employer.
I believe they will be able to recruit with ease - especially since they don’t have
to compete with companies like GlobalFoundries.
For more specialized talents, the city has worked hard to attract those too.
Magdeburg hosts several dozen research institutions and innovation centers.
It also has a science park of its own - the Science Port - for companies seeking to relocate
there.
## TSMC and Tainan
To close on this particular item, let’s take a look at the semiconductor industry's
impact on a place dear to my heart: Tainan.
TSMC turned what had once been a sugarcane field outside the 400-year old Tainan city
into a sprawling tech ecosystem.
The Tainan Science Park today hosts the company's flagship fab - Fab 18, with its leading edge
N5 and N3 processes.
Fab 18's construction brought 4,000 permanent jobs to the area - with the company directly
employing 20,000 in total.
They also extended its supplier ecosystem to Tainan.
The most prominent of which is ASML, which opened up one their EUV training centers in
the area - adding 500 R&D jobs.
The existence of a massive technology center has brought supplementary jobs to the area
too.
McDonalds opened up there in 2012, followed by KFC, Starbucks and a variety of coffee
shops.
There are also a few international schools in the park - foreign faces regularly frequent
the areas.
The technology park's presence has successfully raised the area's education rates, household
incomes and expenditures, and as I mentioned earlier - land prices.
Most hearteningly, per the director of the local administration bureau, the percentage
of local university graduates staying in the area after graduation has doubled.
## ESG
In 2005, Intel announced plans to build a new 45 nanometer fab - Fab 32 - in Chandler,
Arizona.
It went online about two years later in 2007.
That was a massive undertaking requiring 75 miles of conduit, 19,000 tons of steel, and
$3 billion.
Intel worked very closely with the city to acquire all the right permits with almost
no opposition.
Based on what we've learned from the big announcement, this new factory is going to be a similarly
massive undertaking.
The city administration is going to have to carefully and diligently work to accommodate
and make it a win-win for both people and company.
## Water in Magdeburg
Water issues are a critical flashpoint in community relations.
In 2014, Indian officials ordered a Coca-Cola plant to close for using too much water.
This is despite the company presenting what it felt was sufficient data that it was not
impacting or straining local water suppliers.
The river Elbe winds through Magdeburg and is very large - with a catchment area spanning
nearly 150,000 square kilometers.
This river however is shared by the 3.1 million people living in the multiple cities, states,
and countries along its banks - which complicates things.
You can’t just suck out of it like a milkshake.
In the 1990s, the river was extremely polluted due to direct discharges from heavy industry.
Things have improved since then, but the soils still show considerable amounts of mercury,
arsenic, and other heavy metals.
Magdeburg's water supplies thus largely comes from various groundwater sources in the unsettled
landscape areas of - and I am going to butcher these names but I googled this and I'm not
German so be gentle in the comments - Colbitz-Letzlinger Heide and West Flaming - augmented with mountain
water from the Harz Mountains.
For this reason, the drinking water is generally pretty good.
Apparently the region used to host a thriving beer industry a long time ago due to the high
quality of its water.
Their local water utility notes that they deliver about 40,000 megaliters of water annually
to the city through hundreds of kilometers of pipes.
12% of the water is purchased through long-distance sources.
## Water in Semiconductor Manufacturing
Semiconductor manufacturing is immensely thirsty.
This is due to the constant use of ultrapure water, a critical chemical for certain manufacturing
processes like rinses, chemical dilution, and immersion lithography.
Water usage per wafer depends on the sophistication of the process as it is correlated to the
number of wafer layers the factory has to do.
For instance, in 2005 it was reported that it took about 3,300 liters of ultra-pure water
to make 1 wafer.
There is roughly a 95% conversion rate of raw water to ultra-pure, so that's about 3,500
liters of raw water.
These numbers refer to an older 65 nanometer process, which had 8-10 mask layers.
Today's 5 nanometer processes have 10x that number.
I don't believe that the numbers scale up one-to-one, but it is something to think about.
In 2020, Intel reported that its Shanghai, Bangalore, Haifa, Jerusalem, Kiryat Gat, Chandler
Arizona, Ocotillo Arizona, Folsom California, and Rio Rancho New Mexico locations were all
in areas experiencing high or extremely high water stress.
The Ocotillo site withdrew about 17,500 megaliters of water that year.
The Kiryat Gat site - 4,300 megaliters.
Based on average EU water usage statistics, the latter number is equivalent to the annual
water usage of roughly 80,000 people.
For their part, Intel said that the Magdeburg fabs would have net-positive usage when it
comes to water.
On the other side of the coin, another significant water challenge has to do with the wastewater
being returned after usage.
Fabs discharge a significant percentage of their water back to the local municipality.
Depending on the procedures that made them, semiconductor wastewater can have high levels
of heavy metal ions, acids, and alkalines known to cause harm to the environment.
These need to be treated with reverse osmosis filters, chemical de-activators, and solid/liquid
separation procedures.
When done right, treated semiconductor wastewater is cleaner than the raw water at the start
of the whole process.
However, information on this topic and its full risks is difficult to review because
often any data linked to manufacturing processes and complexities is classified as a trade
secret.
## Cars and Traffic
If things go well, then the new Magdeburg fabs will reverse the depopulation trend in
the city for good.
But it might also contribute to the city's worsening car and traffic problems.
The city sits at the junction of several European transport motorways like A2 and A14.
The presence of the River Elbe and its various canals also add substantial freight traffic.
The city however doesn't rank in the top 10 German cities with the worst traffic jams
- yet.
Some 50% of residents use its pretty extensive public transportation network.
Right now that network has 10 daily lines running 100+ trams with more apparently on
the way.
TSMC commissions a large number of buses to commute their technicians to their fabs.
But Tainan still deals with massive traffic jams 3 times a day.
And it is a bit telling to me that in the renderings of the future Intel fab, there's
massive parking lots surrounding the factory.
## Conclusion
Of course, All of this depends on the release of substantial national government support
through the EU CHIPS Act.
Now.
Is it prudent national fiscal policy to be doling out billions to a $200 billion American
company?
And for a factory that’s otherwise unlikely to ever make back the money?
Who knows, but it seems like the decision has already been made.
Regardless this is a great thing for the *citizens* of Magdeburg.
Many cities have had to face the challenges of de-industrialization.
The city chose to invest in human capital, building out a great place to live, and now
has had the fortune to attract a prime free agent.
I look forward to seeing Intel supercharging the city's local manufacturing ecosystem.
There will be lots of work and new challenges ahead.
But it's a great start.