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Oregon Incentives, Idle Plant Are 'Fab' for Microchip's Expansion Plansby JACK LYNE, Site Selection Executive Editor of Interactive Publishing and ADAM BRUNS, Site Selection Managing Editor
GRESHAM, Ore. Spurred by US$17.3 million in state incentives, Microchip Technology (www.microchip.com) has hired the first 60 of what may be as many as 688 employees at its newly acquired facility in Gresham, Ore. - a turnaround that one local official calls "a miracle."
Gresham had needed something like an economic miracle since late last year. That was when Fujitsu announced that is was shutting down its local flash-memory plant, laying off 670 employees. The 826,500-sq.-ft. (76,782-sq.-m.) facility - Fujitsu's first U.S. fab - had been sitting idle since early this year, edging dangerously close to white-elephant status. Razing had become a distinct possibility in the facility's future.
Enter Microchip Technology. The company, which makes microcontrollers embedded a wide array of commercial, industrial and consumer products, was no stranger to the Pacific Northwest. In 2000, Microchip bought an existing Matsushita fab in Puyallup, Wash., 155 miles (249 kilometers) north of Gresham. The Puyallup fab, which is also currently idle, was the clear frontrunner in Microchip's U.S. expansion plans - and even after the company first got wind of the Fujitsu plant's availability.
"We had actually anticipated bringing up our Fab 3 in Puyallup, and when we went up to Gresham to look at this facility, we went up passively," explained Bob Lloyd, Microchip's vice president of site services and facilities management.
"But once we saw how good the facility was, with the equipment and with the employees right there in the backyard, it became a very attractive thing for Microchip and the community," Lloyd continued from the company's Chandler, Ariz., headquarters. "It had the infrastructure we were looking for, the employees we were looking for and the facility we were looking for, so it became the logical choice."
Government Meets Microchip's
And that brought Oregon's Strategic Investment Program (SIP) to the fore. Created by the state legislature in 1993, the SIP allows local governments to exempt from property taxes the assessed value of projects in excess of $100 million. The $100 million cap increases by 3 percent annually.
Speed, though, was of the essence in getting the SIP aid in place. Unlike most other chip-industry players, Microchip is traveling on a fast expansion track. Half of its microcontroller chips are used in product applications in the consumer-goods and automotive industries - two areas projected as among the fastest-growing semiconductor markets over the next few years.
State and local officials were up to the speed challenge. A formal agreement was hammered together in a mere five weeks, far less than the prevailing multi-month norm.
"It's a miracle we were able to enter into a definitive agreement to sell the plant in such a short period of time during a slow economic climate," said Gresham Mayor Charles Becker.
With the SIP assistance in place, the project made financial sense for Microchip - in fact, the company wouldn't have considered the buy without the incentives, Lloyd noted. "The state of Oregon quite obviously had the wisdom to put in programs that would encourage business to grow there, especially high tech," Lloyd said.
Following the SIP incentives' unanimous approval by the Finance Committee of the Oregon Economic and Community Development Commission (OECDC at www.econ.state.or.us), Microchip committed to the deal. The company bought the closed fab for $183.5 million in cash.
Tax Comparison: $2.1 Million vs. $10.3 MillionMicrochip will get a financial boost of some $17.3 million in signing a seven-year agreement. The company will save between 38 and 44 percent on taxes in the agreement's first three years, state officials estimated.
In 2003, for instance, Microchip is projecting investing $200 million at the Oregon site. Without the SIP exemption, it would incur a total tax tally of $3.3 million. But with the SIP exemption, the company will pay taxes of some $1.68 million, plus a $427,663 "community service fee" - part of the SIP program that equals 25 percent of the annual property taxes exempted up to a maximum of $2 million.
In contrast, Fujitsu, which was operating without the SIP exemption, last year owed $10.3 million in property taxes, county officials said.
The SIP program has been criticized by some state residents, who've charged that the subsidies are too big and the benefits too small.
Government officials, however, had marshaled supporting figures. For each Microchip worker in Gresham, the company will pay between $8,511 and $11,119 in property taxes and community service fees, according to a county-commissioned study conducted by consulting firm ECONorthwest (www.econw.com). By comparison, the average Multnomah County business paid $617 per worker in 2001, government officials said.
"Local governments gain new property-tax dollars, companies can reduce some costs, and the state of Oregon gains new jobs," OECDC Finance Committee Chairman William Humphreys said in defending Microchip's SIP incentives.
Another positive for the area is the agreement's stipulation that Microchip will hire locally, specifically targeting former Fujitsu employees. Gresham employees will make an estimated $41,000 a year.
As an added bonus, Microchip and Fujitsu agreed to donate 60 acres (24 hectares) of the 196-acre (79-hectare) campus to the city for green-space and recreational uses.
Bargain Fab Will Double Company's CapacityMicrochip is getting a gem with the Fujitsu fab, company officials said.
"It's world-class and doesn't need a lot of modification," Lloyd explained. "We have budgeted $20 million for physical facility work, but the facility just doesn't need a whole lot. The reason we purchased the facility is that it has the equipment already installed, it's state of the art for our purposes, and it will not require us to spend money for a good long time on capital equipment."
By comparison, building a brand-new fab typically involves $1 billion or more in capital expenditures. Microchip has followed a similar buy-used strategy in building its fab portfolio outside the Pacific Northwest. It bought is fab in Chandler from General Instrument, and purchased its Tempe, Ariz., plant, from Digital Equipment.
The Gresham fab, however, promises to be Microchip's fab crown jewel. It will be the company's most technologically advanced facility, doubling Microchip's chip-production capacity when it reaches full capacity in five or six years, Lloyd said.
Close Shave: Possible Shutdown
"I don't know that anyone knows that but Fujitsu, and I wouldn't presume to speak for them," said Lloyd. "I can only say that that would be really dumb to do that if you had a semiconductor facility. It would make it worth a whole lot less money. If you were to shut the facility down, everything would be questioned as to its quality from a cleanliness or particulation basis, and therefore it would be virtually non-viable as a one-micron fab."
A shutdown, in short, would've created a bona-fide, full-blown white elephant, said Lloyd, a 24-year semiconductor-industry veteran.
"It would cost an enormous amount of money to bring the facility back to a standard that would be acceptable to run one-micron or less semiconductor products in," he said "Condensation plays a big part, because when something condensates, it starts the oxidation process and that becomes a particle. And anything that's a particle is disastrous for the process.
"The air and water systems - everything - would've become question marks."
Instead, with Microchip's buy, that potentially disastrous question mark has become Gresham's "miracle."
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