2002/867/EC: Commission decision of 9 April 2002 on State aid measure C 86/2001 (ex N 334/2001) by which Germany plans to assist Infineon Technologies SC 300 GmbH & Co. KG (Text with EEA relevance.) (notified under document number C(2002) 1346)
Date: 2002-04-09
Institutions: European Commission
Subjects: Germany, State aid, control of State aid, electrical engineering, electronic component, investment aid

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Official Journal of the European Communities

L 307/37

COMMISSION DECISION

of 9 April 2002

on State aid measure C 86/2001 (ex N 334/2001) by which Germany plans to assist Infineon
Technologies SC 300 GmbH & Co. KG

(notified under document number C(2002) 1346)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/867/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
munity, and in particular the first subparagraph of Article 88(2)
thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
in accordance with those provisions (1),

Whereas:

I. PROCEDURE

(1)

(2)

By letter of 22 May 2001, received on 28 May 2001,
Germany informed the Commission that it planned to
grant Infineon Technologies SC 300 GmbH & Co. KG
investment aid within the scope of the multisectoral
framework for regional aid to large investment projects
framework’) (2). The Commission
(‘the multisectoral
registered the planned measure as aid measure N 334/
01.

By letter of 13 June 2001 the Commission confirmed
that it had received the letter, but informed Germany
that it considered the notification incomplete, and asked
a number of supplementary questions. By letter of
18 June 2001 the Commission sought further infor-
mation. Germany supplied further information in letters
dated 3 July 2001, received on 5 July 2001, and 16 July
2001, received on 17 July 2001. On 17 August 2001

the case was discussed with representatives of
the
German authorities. By letter of 30 August the Com-
mission asked Germany to expand the provisions on
ex post monitoring in the notification. By letter of
19 September 2001 the Commission reminded Ger-
many that it still had to supply further information. By
letter of 24 September 2001, received on 25 September
2001, Germany supplied information which was incom-
plete. By letter of 1 October 2001 the Commission
confirmed that it had received that letter and advised
Germany that it still regarded the notification as incom-
plete. By letter of 22 October 2001, received on
23 October 2001, Germany supplied additional infor-
mation. By letter of 26 October 2001 the Commission
informed Germany that it considered the notification
complete, and said it would it would adopt a final
position within two months of the date of receipt of the
letter completing the information.

On 21 November 2001 Germany sent a last letter,
received on 22 November 2001, arguing that the aid
ought to be declared compatible with the common
market under Article 87(3)(b) of the EC Treaty.

On 30 November 2001 the Commission informed
Germany that it had decided to initiate the procedure
laid down in Article 88(2) of the EC Treaty in respect of
the aid.

The Commission’s decision to initiate the procedure
was published in the Official
Journal of the European
Communities (3). The Commission there asked interested
parties to submit comments.

(3)

(4)

(5)

( 1) OJ C 368, 22.12.2001, p. 2.
( 2) OJ C 107, 7.4.1998, p. 7.

(3) See footnote 1.

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(6)

(7)

(8)

By letters of 10 January 2002, received on 14 January
2002, and 28 January 2002, received on 29 January
the
2002, Germany responded to the initiation of
procedure. By letter of 15 February 2002 the Com-
mission sought additional information. Germany replied
by letter of 27 February 2002, received on 28 February
2002. The Commission put further questions by letter
of 21 March 2002, which Germany answered by letter
of 24 March 2002, received on 25 March 2002.

(9)

Three interested parties sent observations to the Com-
mission, which the Commission forwarded to Germany
for comment; Germany replied by letter of 18 February
2002, received on 19 February 2002.

The undertaking concerned supplied additional infor-
mation by letter of 7 March 2002, received on the same
day.

II. DESCRIPTION

2.1. The recipient

Infineon

recipient,

Technologies

The
SC 300
GmbH & Co. KG (SC 300), was founded in February
1998, and is an 87 %-owned subsidiary of Infineon
Technologies AG, of Munich (Infineon). Infineon itself
became a publicly quoted company in March 2000; it
had been hived off from Siemens AG, taking Siemens’s
semiconductor business with it. The remaining shares in
SC 300 are held 4 % by the private limited company
M + W Zander Facility Engineering GmbH, through
SC 300 Beteiligungs GmbH, of Stuttgart, and 9 % by the
private limited company Leipziger Messe GmbH, which
is controlled by the Land of Saxony and the City of
Leipzig.
Infineon’s core business is semiconductors.
Germany emphasises that Infineon is the only European
undertaking competing on this market.

(10) Germany has supplied the following figures for Infineon’s turnover and staffing in the years 1999 to

2001:

Worldwide

(EUR million)

Workforce

EEA
Germany

Turnover

Workforce
Turnover

(EUR million)

Turnover
(EUR million)

Workforce

1998/1999

4 237

24 541

2 444

15 543

1 241

12 352

1999/2000

7 283

27 210

3 259

16 603

1 612

13 522

2000/2001

5 671

33 813

3 005

21 821

1 745

16 814

(11)

In the financial year 1997/1998 Infineon made a loss of
EUR 775 million; in 1998/1999 it showed a profit of
EUR 61 million; and in 1999/2000 it made a profit of
EUR 1 126 million.

2.2. The project

(12) The investment project is located in Dresden, in Saxony,
which is an assisted area within the scope of
Article 87(3)(a) of the EC Treaty.

(14) The project started in April 2000, and is to be
completed by the end of 2003. Total output
is
ultimately to reach 5 000 wafer starts per week. The
plant is to be built in two phases. Mass production
began at the end of 2001, but is still substantially
below final capacity. In the second phase, lasting until
approximately the beginning of 2003, production
capacity is to be raised to maximum. According to the
information supplied this
two-phase expansion is
economically the most viable approach, especially
because mass production of the new technology is still
in the process of development.

(13) A fabrication plant is to be built for dynamic random
access memories (DRAMs) with a line width of 0,14 µm
and below, using 300 mm silicon disks, also known as
‘wafers’. This will be the first production line in the
world for memory chips on 300 mm wafers. In addition
to the production line, SC 300 will also operate a pilot
and development line with the facilities already existing
in the plant.

(15) The DRAMs to be manufactured will have a storage
capacity of 512 megabits and beyond. These DRAMs
will gradually replace DRAMs with a capacity of
256 megabits or less. Infineon currently produces the
lower-capacity DRAMs in Dresden, the United States of
America and Taiwan.

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(16) The move from the production of chips on 200 mm
wafers to production on 300 mm wafers means that the
number of chips per wafer (or productivity) will increase
about 2,5 times. This is expected to reduce manufactur-
ing costs per chip by 30 % to 40 %. The lower line width
reduces production costs further.
It also permits a
smaller minimum feature size, enabling computer parts
to be smaller and cheaper.

(17) The costs of the project can be broken down as follows:

guarantee is also to be given on a loan of EUR 450
million, covering 80 %, or EUR 360 million, once again
under an authorised scheme (5). On the basis of the
information supplied by Germany the Commission
calculates that the aid component in this guarantee is
EUR 1,8 million. The total aid to the recipient amounts
to EUR 218,718 million, which corresponds to 19,8 %
of the eligible investment costs. The non-repayable grant
is given only towards the first phase of construction.

Item

Total

Eligible

(in EUR million)

2.4. Grounds for initiation of formal enquiry

Land

Buildings

Plant and machinery

Tools

Other

(*) Business secret.

[...] (*)

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

Total

1 106

1 106

(18) The new project will increase Infineon’s worldwide share
of the market for DRAMs from 8 % in 1999 to 10 % in
2003, and its share of the market in semiconductors
from 3,5 % in 1999 to 3,7 % in 2003.

(19) The notification stated that the investment would create
1 300 permanent jobs and safeguard 400 permanent
jobs. Indirectly the project was expected to lead to the
creation of 1 030 jobs in its own assisted region and an
adjacent assisted region.

2.3. Aid measures

(20) The proposed assistance consists of investment aid
in the form of a non-repayable grant amounting to
EUR 88 073 million, to be granted in accordance with
the 29th Outline programme under the Joint Federal
Government/Länder Scheme for the improvement of
regional economic structures (Gemeinschaftsaufgabe ‘Ver-
besserung der regionalen Wirtschaftsstruktur’), a scheme
which has been authorised by the Commission. An
investment allowance of EUR 128,846 million is to be
granted under the Investment Allowance Act 1999, a
scheme likewise authorised by the Commission (4). A

( 4) Investitionszulagengesetz, aid measure C 72/98 (ex N 702/
97), SG (98) D/12438, 30.12.1998, and SG (2001) D/28651,
2.3.2001.

(21) On 30 November 2001 the Commission informed
Germany that it had decided to initiate the formal
investigation procedure laid down in Article 88(2) of the
EC Treaty with respect to the proposed aid to the project.
The Commission doubted whether the planned aid
intensity of 19,8 % was compatible with the maximum
allowable aid intensity which has to be calculated
in accordance with the multisectoral framework. In
particular, the Commission had no reliable information
that would enable it finally to determine the character-
istics of
the market, and it could not exclude the
possibility that the market was in absolute decline. It
doubted whether account could properly be taken of all
of the research and development jobs claimed, because
some might not be directly associated with the project.
It questioned whether the number of jobs indirectly
created which had been estimated by Germany could be
used to assess the regional impact of the project.

(22) The Commission also doubted whether the project
would qualify as a ‘project of common European
interest’, which might allow it to be authorised under
Article 87(3)(b) of the EC Treaty.

III. COMMENTS FROM INTERESTED PARTIES

(23) The Commission received comments from two associ-
ations of downstream industries in which DRAMs are
used, and from an independent association of European
businesses and research institutes in the European circuit
board industry. The comments were forwarded to
Germany by letters of 22 and 24 January 2001. Germany
replied by letter of 18 February 2002.

(5) Federal Government and Länder direct guarantee scheme in the
new Länder and East Berlin (Programm für unmittelbare Bürgschaften
des Bundes und der Länder in den neuen Bundesländern und Berlin Ost),
aid measure N 297/91, SG (91) D/1344, 15.7.1991, and aid
measure E 24/95, SG (96) D/5500, 18.6.1996, and SG (98) D/
54570, 11.11.1998.

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(24) All

three interested parties were in favour of
the
proposed aid. They stressed the importance of the
European semiconductor industry and the significant
role of the project in strengthening the competitiveness
of the semiconductor and related industries.

the average annual growth over that period had been
positive. In 1995, market volume in value terms had
been exceptionally high. That year was not representa-
tive, and no account should be taken of it in the
assessment of market developments.

(25)

In a letter of 7 March 2002, SC 300 pointed out that
prices for DRAMs were recovering, and that a further
increase was expected. According to a business news
service the market in DRAMs would increase by 55 % in
2002.

IV. COMMENTS FROM GERMANY

(26)

In its comments on the initiation of the procedure
Germany stressed the importance of the project. Infineon
was the only producer of DRAMs in Europe, and the
new 300 mm technology would give it a cost advantage
over its competitors. Infineon expected the demand for
memory chips (measured in bits) to grow by 50 %
between 2001 and 2002.

(27) According to Germany, the market in DRAMs was
characterised by pronounced cyclical fluctuations and
strong discrepancies between the value and volume of
the market. The competition factor should be set at 1,
as there was no overcapacity and the market was not
declining.

(28) Germany argued that there was no overcapacity at the
aggregated NACE 32.10 level, and submitted relevant
If the Commission were to consider that the
data.
capacity situation at
this aggregated level did not
adequately reflect the situation of the DRAM industry,
Germany argued in the alternative that a subsector at a
lower level could be considered. Data on capacity
utilisation did not necessarily have to be based on the
lowest NACE level in order to assess the competition
factor. Germany provided figures to show that there was
no overcapacity no matter how tightly the relevant
subsector was defined. According to Germany, capacities
for DRAMs were almost fully utilised (95 % to 100 %)
in the years 1994 to 1999.

(30) Germany submitted that when the Commission had
decided to initiate the formal investigation procedure it
had based its assessment of the market purely on the
movement of apparent consumption in value terms. But
apparent consumption in volume terms, measured in
bits, had grown strongly over the period 1996 to 2000,
at an average of 83,3 % per annum. Volume figures gave
a better picture of the market position, because especially
on markets such as the market in DRAMs, where prices
fluctuated widely, value figures did not properly reflect
market capacity. In value terms consumption was vol-
atile, but expressed in bits it had been growing con-
stantly. In earlier decisions taken under the multisectoral
framework the Commission had considered consump-
tion in volume terms too. Germany also argued that
consumption figures in value terms were not meaning-
ful, because they were distorted by subsidies given by
the Korean Government.

(31) Germany submitted the latest forecasts for the DRAM
market, which predicted an average annual growth rate
of 17,7 % for the years 2001 to 2004.

(32) On the question of jobs created directly, Germany
argued that all jobs related to research and development
should be taken into account. The semiconductor indus-
try was research-intensive, and the project at stake would
implement a new production technology. A highly
innovative project such as the 300 mm technology
consequently required particularly heavy expenditure in
research and development, not only before implemen-
tation, but also during the production period, in order
to optimise the application of the new technology.

(29)

In the event that the Commission did not agree to base
its assessment of the competition factor on capacity
utilisation data, Germany submitted that the market in
DRAMs was not in decline. The multisectoral framework
provided for a period of five years for the calculation of
the average annual growth rate to assess the develop-
ment of the market. For the project at issue here,
therefore, the relevant period was 1996 to 2000, and

(33) On the question of the jobs created indirectly, Germany
submitted that the total number of jobs created for every
job created by the recipient itself was in the medium
range. It was difficult to give precise figures for the jobs
that would be created by suppliers and customers.
Germany submitted statements of intent from SC 300
suppliers and customers according to which 729 jobs
had already been created indirectly as a result of the
project, and another 666 would be forthcoming.

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(34) Germany therefore took the view that an assessment of
the aid under the multisectoral framework should not
lead to a reduction in the proposed aid intensity. If the
Commission did not accept this view, Germany asked
that the aid be authorised under Article 87(3)(b) of the
EC Treaty. Germany considered that the four tests of
applicability of that provision were satisfied.

(35) Without the proposed aid measures SC 300 would
not be able to carry out the investment project. The
semiconductor industry was highly capital-intensive,
and was characterised by high technological risks. In
view of the financial and technological dimensions of
the project it could not be expected that SC 300 would
carry out the project without public assistance.

(36) The project was important both quantitatively and
qualitatively. Infineon was the only European producer
of DRAMs, a market dominated by non-European
producers. It could maintain its position on the market
only if it succeeded in applying the 300 mm technology,
in which it was a step ahead of the competition, and
which gave it a significant cost advantage over its
competitors. The fact that for the first time a European
producer was leading in innovation would give the
semiconductor industry and its suppliers an opportunity
to catch up with the leading economies.

(37) As regards the criterion of common European interest,
Germany submitted that the implementation of the
new 300 mm technology would improve fundamental
production processes for semiconductors. The project
would thus enhance the competitiveness and effective-
ness of European industry. For equipment manufacturers
it was of great importance that there should be a
European DRAM producer. Owing to the close connec-
tion with related industries, the existence of a European
DRAM producer favoured the development of those
industries and of the semiconductor industry as a whole.

(39) The DRAM industry was a strategic sector. The Com-
mission had authorised State aid for research and
development in the past. It would be contradictory to
limit State aid now that this new technology was to be
implemented.

(40) Germany therefore took the view that the proposed aid

could be authorised under Article 87(3)(b).

(41)

In its reply to the comments submitted by interested
parties, Germany pointed out that they confirmed that
European industry had an interest in the SC 300 project
because of the expected synergies, which could lead to
increased growth in European industry. The comments
of
the interested parties also showed that industry
supported the proposed State aid.

V. ASSESSMENT

5.1. Assessment under Article 87(3)(a)
of the EC Treaty

(42) The aid has been granted for a new investment in an
assisted area within the scope of Article 87(3)(a) of the
EC Treaty, and must be assessed as regional aid.

(43) The proposed aid amounts to EUR 218,718 million. This
is above the notification threshold of EUR 50 million, so
that the project is subject to the notification requirement
laid down in the multisectoral framework, and has to be
assessed accordingly.

(44) Before the proposed aid can be assessed, the multilateral
framework requires that the relevant market be deter-
mined.

5.1.1. The relevant market

(45) The relevant product market to be referred to, in order
to determine market share, comprises the product to
which the investment project relates and any products
regarded by customers or producers as substitutes.

(38)

For a project to qualify as being of common European
interest, it was not necessary that more than one Member
State be involved. A strengthening of the economic
structure in one Member State could be in the Com-
munity interest if it enhanced the international competi-
tiveness of European industry. The participation of
several Member States was not indispensable.

(46) The investment involved here relates to the production
of DRAMs. DRAMs belong to class 32.10 in the NACE
nomenclature, which comprises the manufacture of
electronic components. DRAMs are electronic com-
ponents: they are semiconductors that store binary data.
They are the most common type of semiconductor
memory. Their main applications are in PCs and low-
cost manufacturing.

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(47) DRAMs can be differentiated according to their memory
size, i.e. the quantity of data that can be stored on the
chips. The size depends on the generation of the chips.
The product is subject to rapid technological change,
with a new generation arriving on the market every
three or four years. DRAMs can also be differentiated
according to the intended application (FPM DRAMs,
EDO DRAMs, SDRAMs or RDRAMs), or the type of
product in which they are to be installed.

(48) There are other types of chip, such as SRAMs (static
random access memories), EPROMs (electrically pro-
grammable read-only memories), and flash memories.
In general
from
DRAMs, and cannot be regarded as substitutes.

these perform functions different

(49) DRAMs are commodity products whose specifications
are standardised. Seen from the demand side, the same
type of DRAM is available to customers from various
suppliers around the world. New generations of DRAMs
are targeted to compete with older ones. The preference
of a customer for a specific type depends on the cost-
performance relationship and the function of the DRAM
in the finished product.

(50)

Seen from the supply side, manufacturers can produce
DRAMs with different capacities, because the tech-
nologies employed are similar. However, switching
between different generations of DRAMs is in general
not easy within a particular facility.

aid ceiling) which a company could obtain in the assisted
area concerned within the context of the authorised
regional aid scheme valid at the moment of the notifi-
cation.

(54)

In the area in which SC 300 is located the maximum aid
intensity for large undertakings splits into two rates,
28 % and 35 % gross. The 35 % intensity is available
only on certain conditions: higher rates of aid may be
granted in justified special cases, on application by a
Land, and with the approval of the subcommittee of the
Planning Committee, towards measures with a high
structural
in areas exposed to international
competition in respect of business location (7).

impact

(55) Germany has not indicated whether these conditions are
met here. As SC 300 is a large undertaking,
the
Commission presumes that the authorised maximum
aid intensity (R) in this case is 28 %. The planned gross
aid intensity of 19,8 % is therefore within the admissible
ceiling for a large undertaking in the region.

(56) The Commission has then to adjust the 28 % percentage
figure in accordance with three specific assessment
factors in order to calculate a maximum allowable aid
intensity for the project
in question: these are the
competition factor (T), the capital-labour factor (I), and
the regional impact factor (M).

(51) The Commission accordingly considers that the relevant
product market is the market in DRAMs (6). No separate
NACE classification exists for this market.

T h e c o m p e t i t i o n f a c t o r ( T )

(52) Turning to the relevant geographic market,

it can be
accepted that DRAMs are traded worldwide on the basis
of the same classifications and marketing concepts.
Transport costs are low, and there are no structural
barriers to market entry. The Commission therefore
considers that the relevant geographic market is the
world.

(57) The authorisation of aid to companies operating in
sectors which are in structural overcapacity poses par-
ticular risks for the distortion of competition. Any
capacity expansion which is not compensated by
capacity reductions elsewhere will exacerbate the prob-
lem of structural overcapacity. The sector or subsector
to be considered will be established at
the lowest
available segmentation of the NACE classification.

5.1.2. Multisectoral framework on regional aid

(53) Under the multisectoral framework on regional aid, the
Commission,
in order to determine the maximum
allowable aid intensity for a proposed aid project, must
begin by identifying the maximum aid intensity (regional

(58) The lowest available NACE code including the manufac-
ture of DRAMs is class 32.10, which covers the manufac-
ture of electronic components of all kinds. Germany has
provided figures for capacity utilisation in this NACE
class, and has argued that there is no overcapacity.
But DRAMs account for only a small part of NACE
class 32.10, and capacity utilisation at this aggregated
level does not provide an adequate picture of the
situation on the market in DRAMs.

( 6) The relevant product market was defined in the same way in the
Commission Decision in Hitachi/NEC Case IV/M 0044, Decision
of 3.5.2000 (OJ C 153, 1.6.2000, p. 8).

(7) OJ C 340, 27.11.1999, p. 8.

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(59) As mentioned in recital 28, Germany argues that the
subsector need not necessarily correspond to a level in
the NACE nomenclature. But footnote 13 to point 7.7
of the multisectoral framework states that ‘the sector or
subsector will be established at the lowest available
segmentation of the NACE classification’. The lowest
available segmentation of the NACE classification is
NACE code 32.10. As explained in recital 58, capacity
data for this aggregated level are not sufficient to allow
a determination of the capacity position on the market
in DRAMs, which is considered to be the relevant
product market. The Commission therefore takes the
view that the assessment of the competition factor
should not take account of an analysis of the capacity
position.

(60)

Point 3.4 of the multisectoral framework states that ‘In
the absence of sufficient data on capacity utilisation, the
Commission will consider whether the investment takes
place in a declining market.’ A market is considered to
be ‘declining’ if, over the last five years, the average

annual growth rate of apparent consumption of the
product in question is more than 10 % below the annual
average of EEA manufacturing industry as a whole,
unless there is a strong upward trend in the relative
growth rate of demand for the product. A market is
‘absolutely declining’ if the average annual growth rate
of apparent consumption over the last five years is
negative.

(61) As explained in recitals 45 to 51, the relevant product
market is considered to be the market in DRAMs, as
there is only limited substitutability between different
types of memory chip. DRAMs are traded on a world-
wide basis, so that the relevant geographic market is
global.

(62) The market share of SC 300 and Infineon does not
exceed 40 % of the relevant market, nor will it exceed
this percentage as a result of the new investment. In
1999 Infineon’s share of the DRAMs market was 8 %. In
2003, when the project has been completed, Infineon
and SC 300 are expected to have a share of 10 %.

(63) Germany has submitted the following figures for apparent consumption of DRAMs in the world
from 1995 to 2000, based on data provided by an independent research institute, VLSI Research
Inc.:

1995

1996

1997

1998

1999

2000

Average annual
growth rate

Value (EUR billion)

31,952

20,101

17,594

12,514 19,431

31,285

– 0,42 %

(64) According to these figures, the average annual growth in apparent consumption on the DRAMs
market in the years 1995 to 2000 was –0,42 %. In the preceding period, i.e. from 1994 to 1999,
the rate was likewise negative, at –1,3 %. This would lead to the conclusion that the market in
DRAMs is in absolute decline.

(65) Germany argues that in order to assess the movement of apparent consumption the Commission
should consider a period of five years, i.e. 1996 to 2000, rather than a six-year period. But the
multisectoral framework refers to the average annual growth rate of the last five years. It has
therefore been the Commission’s practice to look at apparent consumption over six years, so as to
be able to calculate five growth rates (8).

(66) Germany has submitted the most recent forecast of the future development of the DRAMs market

provided by an independent research institute (9):

2001

2002

2003

2004

Average annual
growth rate

Value (EUR billion)

12,502

12,919

16,748

20,559

18,1 %

(8) See Wacker Chemie, State aid measure N 783/2000, Commission Decision of 8.5.2001, Kronoply, State aid
measure N 813/2000, Commission Decision of 3.7.2001, and Hamburger AG, State aid measure C 72/2001,
Commission Decision of 2.10.2000, OJ C 342, 5.12.2001, p. 9.

(9) WSTS, fourth quarter forecast update (February 2002).

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(67) Despite the serious difficulties being experienced at present, the outlook for the DRAMs market is
positive. Latest forecasts expect apparent consumption of DRAMs to grow in value by an average
of 18,1 % in the years 2001 to 2004. According to this forecast, however, apparent consumption
in 2004 would still be below the level of the year 2000. Another study considered by the
Commission predicts an even stronger upward tendency in future, with apparent consumption
exceeding the level of 2000 in 2003 and 2004.

(68) The market in DRAMs is highly cyclical and characterised by strong fluctuations. Average annual
growth rates in value terms differ significantly depending on the period considered. In the period
1993 to 2000 the average annual growth rate of apparent consumption, expressed in terms of
value, was positive, at 14,66 % per year. Despite a drastic fall in apparent consumption between
2000 and 2001, the average annual growth measured from 1993 to 2001 was still just positive, at
0,51 %.

(69) The wide fluctuations on the market in DRAMs are due mainly to the fact that prices are extremely
volatile. The DRAM production process is characterised by relatively high sunk costs and low
marginal costs. As a consequence, prices can move in a very wide range, as companies can produce
DRAMs profitably as long as their marginal costs are covered. To look at the development of
apparent consumption only in value terms, therefore, may give an inadequate picture of the market
in DRAMs.

(70) Apparent consumption expressed in terms of volume, that is to say measured in units sold, has in
recent years seen steady and substantial growth. From 1995 to 2000 the average annual growth
rate was 10 %, and from 1994 to 1999 it was 11 %.

(71) Over the long term DRAM prices have shown a downward trend. But this does not seem to be a
consequence of overcapacity in the industry, although it is true that stocks have sometimes built
up to a high level, and prices have collapsed as a result. Production costs have fallen considerably
in recent years. The falls in prices have thus been caused by constant improvements in the efficiency
of production resulting from the reduction in the line width and routine changes in wafer diameter,
from one inch in the 1970s to 300 mm today. The yield has also improved constantly, as
manufacturers have sought to reduce the number of non-functioning circuits and to increase the
number of working circuits on the wafer.

(72) When it initiated the procedure the Commission said that it had not got sufficient reliable
information to be able finally to determine the exact characteristics of the market for the purpose
of setting the correct competition factor.

(73) The Commission accordingly concludes that the market should be considered to be in relative
decline, rather than in absolute decline. This is confirmed by the fact that capacities have been used
nearly to the full in recent years, with capacity utilisation rates significantly above the average for
manufacturing as a whole. The Commission therefore sets the competition factor at 0,75.

T h e c a p i t a l - l a b o u r f a c t o r ( I )

(74)

For highly capital-intensive projects the multisectoral framework provides for a ‘capital-labour
factor’ which is intended to adjust the maximum allowable intensity so as to give an advantage to
projects that make a genuine and better contribution to reducing unemployment by creating or
safeguarding a relatively higher number of jobs. This factor also takes account of any distorting
effects of the aid on the price of the final product.

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(75) The multisectoral framework expressly provides that jobs safeguarded are to be considered only
where it is shown that they are directly associated with the investment project, would require a
significant amount of retraining, and would otherwise no longer exist when the project goes into
production.

(76)

In the case at issue the number of jobs created would be 1 300, and the number safeguarded would
be 400. They break down as follows:

Jobs safeguarded

New jobs

Total

9

11

9

177

64

62

35

18

15

Management

Business administration

Production control

Production operators

Production maintenance

Production engineers

Process development

Automation/IT/CIM

Facilities

Technology, quality, product engineering

Technology development

Environmental protection

Logistics

1

28

12

584

204

87

64

32

59

90

102

6

31

10

39

21

761

268

149

99

50

59

105

102

6

31

TOTAL

400

1 300

1 700

(77) The jobs to be safeguarded are related to SC 300’s existing pilot and development line. According
to Germany, if the new project were not carried out, SC 300 would not continue its activities, the
equipment would be sold, and the jobs would be lost. The jobs safeguarded are therefore directly
associated with the project. The Commission understands that a large part of these jobs are in
research and development work for ordinary product development.

(78) The capital-labour ratio is significantly lower than in two other projects in the semiconductor
industry. According to Germany this is partly the result of the integration of engineering activities
and jobs linked to research and development activities. When it initiated the procedure the
Commission said it doubted whether all jobs in research and development could be taken into
account, as they might not be directly associated with the project.

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(79)

In the comments it put forward following the initiation of the procedure, Germany explained the
high number of jobs in research and development. Germany also confirmed that SC 300 was not
receiving any State aid towards R&D. The Commission therefore concludes that all of the
1 700 direct jobs claimed by Germany can be taken into account in the calculation of the capital-
labour factor. The capital-labour factor for an investment of EUR 1 106 million which would
directly create or safeguard 1 700 jobs corresponds to EUR 650 588 per job, and can therefore be
set at 0,8.

T h e r e g i o n a l i m p a c t f a c t o r ( M )

(80) The regional impact factor reflects the economic benefit to the assisted area. The Commission
considers that job creation can be taken as an indicator of the contribution of an investment project
to regional development. Capital-intensive investments may indirectly create jobs in the assisted
area or in an adjacent assisted area; ‘job creation’ here refers to jobs created directly by the project
and jobs created by first-tier suppliers and customers.

(81) The notification stated that the jobs created indirectly as a result of the investment were estimated

at 1 030, mainly among suppliers. They broke down as follows:

Supply of 300 mm silicon wafers

Reclaiming of 300 mm test wafers

Extension of infrastructure (safety, cleaning, catering)

Supply of materials

Maintenance of equipment

Transport

Building infrastructure

Indirectly
created
jobs

600

100

12

40

90

30

50

This figure of 1 030 was revised in the most recent
information supplied by Germany.

(82) A new plant was originally to be constructed by [...] to
deliver 300 mm disks to SC 300, and this was expected
to create 600 indirect
initiated the
procedure the Commission said it doubted whether this
project would be carried out, and argued that no account
could be taken of the 600 jobs which were allegedly to
be created there.

jobs. When it

(83)

[...] currently has two production sites in Germany, in
Burghausen and Freiberg. In Freiberg it runs production

TOTAL

1 030

lines for 150 mm and 200 mm wafers. Germany states
that Freiberg city council has recently agreed to the
development plan for the extension of the plant. Ger-
many has also submitted a letter of intent from [...].
Germany argues that there is no reason to doubt that
the project will be carried out.

(84)

In the letter of intent [...] it states that the SC 300 project
will
lead to the creation of 120 jobs. According to
Germany, this figure is based on the assumption that
20 % of [...]’s output will be delivered to SC 300. SC 300
has given [...] express confirmation of this figure, but it
should be regarded as a minimum. It is fair to assume

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that [...] will deliver at least 50 % of its output to SC 300,
which would mean that the number of jobs indirectly
created would be 300. For legal reasons SC 300 was
unable to give [...] an express undertaking to take this
quantity, so that the figures in the letter of intent are too
low. The Commission takes the view that for the
assessment of the regional impact account can be taken
of 120 jobs created by [...].

(89) A further 438 jobs are expected to be created in
equipment maintenance. Of these, 282 have already
been created. Germany has stated that these jobs involve
activities relating to the maintenance of the equipment
installed in the factory. Servicing of this kind is necessary
because the operation of semiconductor factories is
characterised by a constant turnover in production plant
and components.

(85) Germany has also submitted a letter of intent from [...],
a company which already supplies SC 300, and plans to
set up a new plant for reclaiming test wafers. Reclaiming
is a process for recycling wafers that are used at various
points for monitoring the DRAM production process,
and which can be reused. Recycling silicon wafers is
worthwhile because they are very expensive. Most
recycled wafers are used once again as test wafers. In the
notification Germany said that 100 jobs would be
created in the reclaiming of test wafers. According to
the most recent information supplied, [...] would create
130 indirect jobs. Germany states that 95 of these are
attributable to the SC 300 project. The Commission
takes the view that for the assessment of the regional
impact account can be taken of 95 indirect jobs created
by [...].

(90)

In the transport of raw materials and inputs, 21 jobs
have already been indirectly created. Another 13 indirect
jobs are to be created here.

(91)

For the maintenance of the building infrastructure,
Germany expects a total of 275 jobs indirectly created.
These jobs arise out of regular work that has to be done
to preserve the quality of the building infrastructure,
including such things as IT services, operation and
maintenance of electrical systems, ventilation and clean-
room installations, and work related to the management
of the building. Of these jobs 121 have already been
created.

(86) Germany originally indicated that 330 jobs would be
created indirectly by the extension of the infrastructure,
the supply of materials, transport and building mainten-
ance. In letters of 29 January 2002, 27 February 2002
and 25 March 2002, Germany expressed the opinion
that the number of jobs indirectly created in these areas
would be 1 145, and submitted statements of intent
from 53 firms which were customers of or suppliers to
SC 300. Germany stated that 729 of these jobs had
already been created, and another 416 were expected.

(87) The number of jobs to be created in infrastructure is
224. This comprises jobs related to safety, catering and
cleaning. As mass production has already begun, and
the majority of the employees are already at work, 150
of these jobs have already been created.

(88) The number of jobs expected to be created in the supply
of materials is 174. This comprises the supply of gas,
water, electricity and the chemicals needed for the
the associated preparatory pro-
production process,
cessing and logistics. Of these 122 jobs have already
been created.

(92) The multisectoral

framework provides that

for the
assessment of the regional impact of a project jobs
created indirectly by first-tier suppliers and customers in
response to the aided investment can be taken into
account. In this context a ‘job’ means a permanent full-
time job or its part-time equivalent.

(93) Germany has confirmed that the indirect jobs satisfy
these tests.
that a large
In explanation of the fact
proportion of the indirect jobs has already been created,
even though the plant will be working at full capacity
only at the beginning of 2003, Germany says that the
building work was completed in April 2001. After that
the initial phase or ‘ramp up’ began. At that stage the
plant and machinery was installed in order to begin test
and pilot production; this was done in early summer
2001. Mass production started in December 2001.

(94) On the basis of the information provided by Germany,
the Commission takes the view that the calculation of
jobs indirectly created is a fair one. The Commission
concludes that the number of jobs indirectly created in
response to the aided programme will be 1 360. As
compared with the 1 700 jobs created or safeguarded
directly, the degree of indirect job creation is therefore
medium (between 50 % and 100 %), and the Com-
mission accordingly sets the regional impact factor at
1,25.

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M a x i m u m a l l o w a b l e a i d i n t e n s i t y

(95)

For these reasons, the maximum allowable aid intensity
is to be calculated as follows: 28 % × 0,75 × 0,8 × 1,25
= 21 % gross. The aid of EUR 218 718 million which
Germany plans to grant to SC 300 towards its invest-
ments in Dresden, Saxony, equivalent to an aid intensity
of 19,8 % gross,
is therefore within the maximum
allowable aid intensity calculated in accordance with the
multisectoral framework on regional aid.

5.1.3.

Ex post monitoring

(96)

(97)

In view of the sensitive nature of the large mobile
investments involved, it is essential that a mechanism
exists which helps to ensure that the level of aid actually
disbursed conforms with the Commission Decision.

For each aided project approved by the Commission
under the multisectoral framework, therefore, the Com-
mission requires either that any aid contract between the
relevant authority of the Member State and the aid
recipient contains a reimbursement provision in the
event of non-compliance with the contract, or that the
final significant payment of the aid (e.g. 25 %) will be
made only when the Commission, on the basis of
information from the recipient provided by the Member
State,
is satisfied that execution of the project is in
compliance with the Commission decision and within
60 working days has indicated its agreement or raised
no objections to the final payment of the aid.

(98) The Commission notes that the proposed decision to
grant aid to SC 300 contains a provision providing for
reimbursement in the event that the recipient infringes
the decision granting the aid.

(99) The Commission notes that the final significant payment
of the aid (25 %) will be made only when SC 300 has
shown the German authorities that the project has
been carried out in conformity with the Commission
Decision.

(100) The Commission also notes that the undertaking given
by Germany concerning ex post monitoring complies
the
with the obligations laid down in point 6 of
multisectoral framework. In particular, Germany has
undertaken to supply a copy of the decision to grant the
aid, an annual report on the project, and the other
information and documents referred to in point 6.4 of
the multisectoral framework.

5.2. Article 87(3)(b) of the EC Treaty

(101) In the event that the Commission does not authorise the
proposed aid intensity of 19,8 %, Germany relies
alternatively on Article 87(3)(b) of the EC Treaty, and
argues that the establishment of the chip factory is a
project of common European interest. However, as aid
of
the planned intensity of 19,8 % is within the
maximum allowable aid intensity calculated in accord-
ance with the multisectoral framework on regional aid,
there is no need to consider the question of the common
European interest any further here.

VI. CONCLUSIONS

(102) On these grounds the Commission concludes that the
aid satisfies the tests of compatibility with the common
market,

HAS ADOPTED THIS DECISION:

Article 1

The state aid amounting to EUR 218 717 884 which Germany
plans to grant to Infineon Technologies SC 300 GmbH & Co.
KG is compatible with the common market.

Article 2

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 9 April 2002.

For the Commission

Mario MONTI

Member of the Commission