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MARCH 2005

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IBM Leading $2.7-Billion
Empire State Expansion



ig Blue is getting a whole lot bigger in New York. And IBM's bringing along a host of other high-tech heavyweights in
Since a watershed investment decision that kept Big Blue in New York, IBM's Fishkill complex has served as an investment catalyst.
a US$2.7-billion expansion blitz. A trio of Empire State projects will create at least 750 research and manufacturing jobs, plus another 250 related research positions, announced Gov. George Pataki in his State of the State address in January 2005.
      Tiny chips are the catalyst for all the big expansions. The largest investment is the $1.9 billion that IBM and a group of global giants — Advanced Micro Devices, Charter Semiconductor, Infineon Technologies, Samsung, Sony and Toshiba — are ponying up in a fab expansion in East Fishkill, N.Y. The project will add a connecting annex to IBM's $2.5-billion, 300-millimeter fab, completed in late 2002.
      On-site construction has been visible since late last summer. But IBM wouldn't discuss the project, honoring its close ties with Pataki. The company didn't describe the expansion until after the governor announced it.
      "This investment represents one of the largest of its kind in the world, and it's happening right here in the Hudson Valley," Pataki told the assembled in Albany.
      New York is showing concomitant confidence with $150 million in state subsidies. Half will go to the Fishkill expansion; the balance will support two other projects in Albany involving $775 million in investment.

Collaboration Reigns
      Collaboration is king in all three projects.
      The new Fishkill operation, for example, will research and manufacture chips for key IBM customers. All six allies are customers and established collaborators.
      The coalition gives IBM's investment sizable leverage. Its partners represent a broad slice of the market for consumer products and microprocessors. The joint work in Fishkill strongly positions Big Blue to supply the chips powering the Asia-made wave of new video games, HDTVs and set-top boxes expected over the next few years.
      Consider Sony. Chips for the next-generation PlayStation will likely be developed in Fishkill. Sony hasn't yet inked a deal for the video game's new chips. But the Japanese company is investing $325 million in the Fishkill expansion. (It's currently unclear how much the other partners will invest.)
      IBM's allies gain substantial benefits as well. They greatly reduce the capital required to create next-generation chips, while gaining access to state-of-the-art chip-making. IBM's Fishkill fab can manufacture wafers with features as small as 90 nanometers. (One nanometer is equal to one-billionth of a meter.)
      ASML R&D Center Albany-Bound Nanotechnology is at the heart of the two Albany projects.
      One will create ASML's first non-European R&D center. The Netherlands-based firm is a leading manufacturer of the lithography systems used to transfer circuit patterns onto chips. The Albany center will cost at least $325 million, Pataki said. IBM is joining ASML to fund the facility. That union, said ASML Executive Vice President Martin van den Brink, supports the company's core strategy "to build R&D alliances to support and continuously improve our products and services as they are introduced into our production facilities."
      The center will be located at the Nanoelectronics Center of Excellence at the State University of New York at Albany. ASML's site choice, van den Brink explained, is directly linked to IBM's concurrent commitment to invest $450 million and add a semiconductor production line at the Nanoelectronics Center. That center already houses a 300-millimeter wafer prototype facility.
      IBM's investment, noted Pataki, "will fund an unprecedented ... expansion of that center's R&D capabilities," making it the world's most advanced university-based 300-millimeter research facility, state officials asserted. For the first time ever, scientists and university researchers will collaborate there on chip technologies more than 3,100 times thinner than a human hair.
      Companies expected to join IBM in that project include Applied Materials, ASML and Tokyo Electron.

Investments That Paid Off
      The expansions mark a payoff for both IBM and Pataki.
      When Pataki first came to office in 1995, Armonk, N.Y.-based Big Blue was seriously considering abandoning New York. One of his first phone calls went to then-IBM Chairman Lou Gerstner. More calls followed, as did hefty incentives.
      The persistence paid off. IBM stayed in New York, where it's steadily expanded. Gerstner conceded in 1997 that one of those expansions — a 1,800-employee East Fishkill fab — was originally bound for another state.
      "Over the last decade," Pataki said in January, "IBM has repeatedly demonstrated its confidence in New York and our policies through a succession of landmark investments."
      For IBM, the Albany Center expansions are apt. Big Blue played a pivotal role in creating the center with 2001's $100-million donation. "We view this as less a donation and more of an investment," Senior Vice President John E. Kelly III explained in 2001.
      For all parties, investments seem to be paying off.

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