Northeast England's Semiconductor Nightmare

let's do something different this time for this video i'm going to shift focus from asia to talk a little about the united kingdom northeast england was once a heavy industry powerhouse but when those industries declined the region struggled to come up with its next growth industry so when siemens semiconductor pledged in 1995 to invest over a billion pounds for a semiconductor fab the area was overjoyed the queen showed up in everything but the plant never had a chance siemens closed it after just 15 months of operation an aborted attempt to revive the plan fell through what happened here in this video we're going to look at semiconductor manufacturing's failure in north tyneside but first i would like to ask if you might be interested in the patreon if you like what this channel does you can support the work by joining the early access tier early access members get to see new videos long before they are released to the public the backlog is quite significant so head on over to the patreon page and take a look i deeply appreciate anything you'd be able to sign up for thank you and on with the show the uk as you might recall from a certain cgp grey video is made up of four countries northeast england is a first level region within england and is by far the least populated with less than 2.7 million residents northeast englanders have the lowest median gross annual earnings in england and as of 2012 the highest proportion of population claiming income support northeast england has been a frontier land dating back to the roman days it has had a significant employment gap with the rest of the uk since at least the 1930s in 1995 the unemployment rate was 9.1 percent 50 percent higher than in the rest of the uk its economic challenges today date back to certain political and historical conditions the area has long been dependent on heavy industry and its rich coal mines in the years after world war ii the british government nationalized the northeast coal and steel industries the ministry of fuel and power wanted to maximize the output and employment of these areas resource economies so they argued that no new male employing manufacturing industries should be introduced to them this left northeast england dangerously dependent on these two industries so when de-industrialization started in the 1980s the residents had little to turn to as an alternative the tensions culminated with the minor strike of 1984 to 1985 with the miners striking not for higher wages but to keep the mines from being closed upon the strike's defeat the miners came back to work and found much to their shock that the mines were now depleted of cheaply mined coal imported coal was simply too cheap thousands of miners ended up losing their jobs so entering the 1990s northeast england finds itself lost at the margins of the global economy and their people have the less than totally undeserved notion that people back in london don't really care all that much about them as compared to other areas in the uk for instance the barnett formula a 70s era treasury mechanism that allocates public spend amongst the four countries scotland northeast england's neighbor to the north gets substantially more public spending and uses it to provide more attractive investment packages to multinational companies this is why the dreams of a semiconductor manufacturing facility resonated so strongly when the german company siemens approached them about a possible investment opportunity siemens is an old-fashioned german company founded in 1847 the company developed a solidly profitable and comfortable position within its home country the german government supported siemens for the sake of nationalism and employment for instance the bundesbank the german state-run postal service and telecommunications business that existed from 1947 to 1985. in the 1980s it announced that it would only give orders to firms that produced their equipment in germany most of those orders went to siemens and sel standard electric lorenz siemens charged the state outrageous prices with margins north of 100 over the years the company leveraged those domestic profits to diversify into many different product lines and countries including the united kingdom by the 1980s however deregulation was the trend in the united states and the uk siemens suddenly found itself needing to compete and management felt that they had to respond a decision was made where the company would become more international shareholder friendly and market-oriented the global semiconductor industry on the whole was doing quite well back then microsoft had just released windows 95 an os so hot that people waited in lines at retail stores to buy it mobile phones had started to become a thing around the world the mass adoption of this powerful software drove demand for computers and in turn semiconductors the semiconductor industry grew 29 in 1993 32 in 1994 and 42 in 1995. in 1995 the industry invested a staggering 30 billion dollars on new chip fabrication facilities known as fabs in the industry siemens semiconductors benefited from this market for most of its existence the department served as the company's in-house producer for making chips for its other divisions but in the 1990s it started competing for its own customers they focused mostly on niche markets that were aligned with the rest of the group's other product lines for instance application specific integrated circuits or asics made for the telecommunications mobile phone and automobile industries sales grew 40 a year in the early 1990s driven by high consumer electronics and telecom demand in its core european markets by 1994 siemens was the 12th largest semiconductor maker in the world but the company felt that it had still so much opportunity to seize especially internationally the company had a solid seven percent market share in the europe market but only 1.9 percent market share worldwide plenty of room to grow thus siemens semiconductor in 1994 set forth an internal plan to triple their existing chip sales and enter the industry's top 10 rankings a major part of that plan involved internationalizing the company that means establishing semiconductor activities outside of its core german markets assembly and packaging plants in malaysia and portugal strategic alliances with japanese and american semiconductor makers electronics assembly plants in china and so on as part of this move siemens drew up plans for four new large-scale fabrication plants in 1995 siemens approached the invest in britain borough to talk about possibly establishing a wafer fabrication facility in the uk the company had recently finished a 16 megabyte dram facility in dresden with much success this new fab would be the exact copy of the dresden fab it would cost about 1.1 billion british pounds or 785 million usd and directly create 2 000 new jobs fully realize it would be the uk's biggest ever inward investment to date siemens was also considering ireland austria israel singapore and vietnam as other possible locations for this new fab with ireland and austria the biggest competitors siemens had multiple criteria it needed good skilled people at low cost excellent water and power infrastructure geological stability and ample government support the town of north tyneside in northeast england checked all the boxes the area boasted skilled technician-level people with a willingness to work around the clock shifts siemens could recruit educated electronics and computing grads out of the local universities or from nearby scotland and salaries there were 50 percent lower than in austria or germany when siemens officials conveyed concern about electricity infrastructure the government offered them a direct connection to the national grid the first time a private company has ever been offered as such local development agencies in northeast england for their part worked hard to schmooze and win over siemens officials they took them out on knights in newcastle drove them around north tyneside to tour the area arranged university professors to give presentations and of course offered ample government support the wall street journal reports that uk public support in the project totaled 64 million pounds or 45 million usd though ultimately not all of it was used some came in the form of tax exemptions and others in grants and job training subsidies it sounds like a lot and it kind of is that ireland and austria offered more lavish and transparent support austria in particular offered 120 million pounds or 85 million us dollars and at the same time it is hard to say that it was a bad investment there were a lot of legit reasons for offering such a package semen semiconductor was a globally famous name these opportunities did not come along very often snagging the siemens fab would also further establish the area as a semiconductor destination fujitsu built a northeast england fab back in 1989 having received a subsidy package three times as large so adding siemens to the area would push suppliers and semiconductor companies to set up regional offices there and it could potentially kick off an entire industry and of course the uk government saw the opportunity to transfer technology and skills to the local population as well as the chance to replace semiconductor imports from europe this trade impact in particular was a very big deal at the time siemens could have put a fab anywhere expanding the existing facilities in austria was probably the least riskiest option but in the end the money made sense and the company wanted to commit to the uk market uk revenue grew 25 each year from 1985 to 1995. siemens was the uk's 13th largest r d investor overall third largest in the electronic space they employed 10 000 workers in the country across a dozen manufacturing sites a fab would be a nice new addition hours after the deal was struck and the announcement made local job centers were inundated with job inquiries one center took four thousand calls in three hours semiconductor fabs are built in phases this is so that they can start producing wafers to sell as soon as possible semi-manufacturer want to take advantage of favorable industry conditions while they last the north time side fab was no different and by all accounts it seems like construction went off without a hitch two phases were announced phase one would be finished in mid 1997 producing 16 megabyte dram memory units with a 0.35 micron process phase 2 would come after that producing the more advanced 64 megabyte memory units using a 0.25 micron process capacity would be upgraded to 20 000 wafer starts a month and meet the full 2000 job requirement contractors broke around on the faf before the company even owned the land siemens wanted to go so fast they couldn't wait for concrete to dry so they brought in a more innovative steel frame to build around siemens completed the fab in just 376 days production began in may 1997 just a year and a half after breaking ground the queen herself traveled to newcastle to tour the facility in fuzzy slippers and cut the ribbon she told the audience the north tyneside fab brings the country to the forefront of semiconductor manufacturing looking back on these remarks now knowing what we know it makes me feel kind of sad in 1997 siemens delayed phase two of the tyneside plant then in july 1998 they announced that the whole thing would close by the end of the year the fab had not even been open for a full two years i feel like it is necessary to go over what went wrong what we now know is that the north tyneside fab had always been on thin ice the dram market is immensely volatile extremely prone to rogue waves of oversupply the reason for this is that these memory chips are a cheap commodity that at the low end competes on price memory is easier to fab right off the bat and the product has little differentiation from other low-cost competitors and there are many competitors especially out in asia south korea in particular as they have 40 percent of the market scale leading edge technical mastery and market position are what matters in this industry knowing this siemens decision to equip the fab with the older 16 megabyte memory technology was particularly perilous it was already going out of date by 1995 plants back home in germany were already starting to crank on 64 megabytes part of the reason why siemens wanted a cheaper location to build the fabin was to keep producing these older memory modules at a profit and maximize the return on investment i read one source say that the fab was originally going to do logic chips but no other source has said the same seems like it was always going to be 16 megabyte memory had there been a choice back then though i don't think there was it would have made more sense to push for the tine side fab to make either leading edge 64 megabyte dram or logic chips like those from intel and amd in 1998 the semiconductor market crashed in memory specifically the price per megabyte plummeted from 27 dollars to just four dollars by the time the time side plan opened in 1997 and then crashed yet further to just two dollars per megabyte by 1998. chips that used to sell for 50 in 1995 sold for just one dollar in 1998. semiconductor giants in south korea teetering on the brink from the asian financial crisis produced as many memory wafers as they could to stay afloat industry-wide profits collapsed japan's fujitsu and toshiba profit fell nearly 90 percent acer and mitsubishi shut down plants in the year ended september 1997 a siemens semiconductor made 109 million deutsche mark or 65 million dollar usd profit by 1998 the same time period that had crashed to a stunning loss of 1.2 billion deutsche mark or 722 million usd a third of siemens business divisions made a loss that year but the semiconductor divisions was especially appalling seaman semiconductor needed to cut costs and unfortunately that meant closing the uk plant economically it lacked scale it was not fully built out yet having just the third of the capacity of the companies dressed in plants it was too small furthermore the uk plan had no big backers inside or outside the company siemens would never dare touch its germany or austria plants and its plants in the u.s france and taiwan were joint ventures that the company could not easily remove itself from inside the company the pro-british management who got the plant built in the first place lost their jobs including the ceo the new siemens semiconductor ceo was not necessarily anti-britain but he was very pro-germany he implemented a number of cost-cutting measures and downsized the company in an effort to refocus on its core market the exit was extremely messy closing down north tyneside would cost nearly a quarter of a billion dollars this represented 45 percent of the division's projected loss that year but reduced its over capacity by just 20 percent siemens had to pay back some amount of government grant money something probably north of 15 million pounds in august 1999 siemens semiconductor was spun off into a new company now called infineon technologies the workers lost their jobs but what was going to happen to the facility for a few months various rumors of buyers floated around finally in september 2000 a semiconductor firm called atmel emerged as a white knight to save the facility atmel produced a variety of higher value semiconductor products avoiding things like mass commodity memory this included flash nand memory radio frequency ics and logic products they had been one of arm's first licensees the company paid siemens 25 million pounds or 35 million usd for the facility they then announced that they would invest 700 million pounds or 800 million usd to retool the place to make flash memory and microcontroller circuits flash memory and microcontrollers are definitely more stable markets than dram but nothing in the electronics industry was saved from the dot com crash in 2001. atmel lost 31 million pounds or 45 million dollars and revenues declined by 23 percent the company laid off 26 of its workforce 2 600 people interrupting its northeast england investment plans things were covered though and for a few years admiral never really ruled out making a new commitment to the fab but finally in 2006 they committed to a fab light model that saw them let go of four fabs including the north time side fab in 2007. tsmc bought all the semiconductor production equipment and the now empty buildings were sold off with that the semiconductor dream had finally come to an end today the fab facility has been turned into a business park the cobalt business park features some government offices call centers and regional offices the north tyneside fab closure was not an isolated occurrence 1998 alone saw the loss of 3 400 manufacturing jobs in northeast england factories belonging to electrolux a swedish company and pringle a luxury knitwear company also closed then finally the fujitsu fab the one that opened back in 1989 closed as well the local economy's curse is that it lacks native corporate leaders all of these local factory jobs were provided to it by companies from elsewhere they had little attachment to the place and when financial crisis struck they favored their homeland it would be very interesting to investigate why the area and its government could not nurture such a native manufacturer but that is for another video like as i said back at the start of this video north tyneside and the rest of northeast england have yet to return to its past glory days but there are a few green shoots ironically coming out of the energy space once again renewable energy companies have begun investing in northeast england and it looks like there is a growing wind industry there the darker bank wind farm for instance is poised to be one of the biggest in the world it's a little bit of good news to end with for a place that has seen a lot of bad news for a really long time alright everyone that's it for tonight thanks for watching if you want more content you can like and subscribe to the channel the feed is going to show you a bunch more videos like this one to watch and remember to hit up the email newsletter and sign up want to send me an email drop me a line at john asionometry.com i love reading your emails and if you live in taipei i would love to sit down and grab a coffee sometime until next time i'll see you guys later

Channel: Asianometry

Views: 382,348

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Id: AE0DEOictVg

Length: 19min 48sec (1188 seconds)

Published: Sun Sep 26 2021

Reddit Comments

[u/Geekv2]

Love Asianometry videos! Interesting and informative.

[u/idc1239]

Great youtube channel for semiconductors, fabs and chips stuff