October 2005
  Incentives Deal of the Month

Austin Powers Up
... and so does Rio Rancho

Samsung On Brink of $3.3-billion Texas investment;
Intel to Invest $650 million in New Mexico

Opened in 1997, the Austin fab (pictured) is Samsung's only chip plant outside of South Korea.

Site Selection Managing Editor

       In August we told you about Intel's $3-billion, 1,000-worker new chip fab in Arizona, and the friendly state legislation that was key to its fruition, right next door to existing operations. Turns out the company looking to overtake Intel on the global chip stage is building its own $3.5-billion chip fab just two states over.
       Official board of directors' approval of a committee recommendation is all that stands in the way of Austin, Texas, and "Project Sky," a 300-mm. chip fab from Samsung Electronics, which built its first plant in the city seven years ago and expanded it with a $500-million, 300-job investment in May 2003. Existing infrastructure — and the faster project completion it implies — is rumored to have been a strong selling point for the Austin location over competing sites in New York, Arizona and Oregon. And the choice will mean the Austin site will remain the company's only non-Korean manufacturing site.
       Oddly enough, it was that 2003 project, among others, that Texas Gov. Rick Perry used to fire up support for his $295-million Texas Enterprise Fund — a fund that, once passed, helped attract Texas Instruments' own $3-billion, 1,000-worker plant in 2003. That project also worked in tandem with an initial TI plant investment in Dallas in 2001, and received $135 million in incentives. This time around, the Samsung project, employing 700, will receive a package worth approximately $231 million. The Texas incentive package includes $58.5 million in incentives from the City of Austin [www.austin-chamber.org], as well as $12 million from the state's Enterprise Fund, $112 million in tax breaks from Manor Independent School District and other incentives from Travis County, which offered its first-ever tax abatement for the original investment by Samsung in 1996. The city portion includes more than $47 million in property tax abatements over 20 years, in addition to fee and utility investment rebates.
       As Samsung's 2003 announcement, Gov. Perry said, "You've got to go compete for these jobs... They're going to shop around. They're going to see what our friends up in New York are willing to offer. I want Texas to get those jobs."
       And Sung Lee, president of Samsung Austin Semiconductor, offered some promise of what was to come that same day as well:
       "We believe the governor's economic development efforts will pay off for years to come," he said.
       But the hints began dropping even way back at the company's original Austin announcement in 1996, when Y.W. Lee, president and CEO of Samsung Electronics' semiconductor group, said, "Although it would be premature to make a firm commitment at this time, Samsung Electronics has prepared a long-term strategy that could potentially increase its presence in the Austin area."
       That project was the first of the 1,000-job monsters, but its investment total was just over one-third of the current one, at $1.3 billion.
       That climb in capital investment is in part attributable to the high cost of building and operating a chip fab in the U.S., which Intel CEO Paul Otellini has pegged as $1 billion per decade more expensive than comparable locations in Asia and elsewhere. But the companies keep looking, and keep building.

Good Things Continue
to Arrive in Pairs
       Before Samsung can even put the finishing touches on the Austin project announcement, however, Intel is counterpunching with its announcement this week of a $650-million investment in 300-mm. capacity at its Rio Rancho, N.M., site.
       As recently as July, New Mexico looked to be getting just the scraps from the big Arizona announcement, when the company said it would invest $105 million at an inactive site there in order to perform component testing over the next two years, employing 300. Now the company will be expanding Fab 11X and adding 300 more jobs to its state profile. Like Arizona, New Mexico had recently made tax law changes favorable to further investment from a company like Intel. But the ability to layer on investment at an existing site, and with an existing skilled labor pool, may have trumped other factors.
       "Additional 300-mm. wafer manufacturing capability helps improve the overall cost-effectiveness of our worldwide manufacturing network," said Intel's Paul Otellini. "Investing in an existing manufacturing site allows us to take advantage of our highly skilled work force in New Mexico." Construction and new tool installations are scheduled to continue through 2006, with production operations set to begin through the new expansion in early 2007.
 Sematech's campus in southeast Austin (pictured) is credited with transforming the profile of the area, which is now known as "Silicon Hills."

       Samsung likes the double play too: Witness the company's twin LCD investments in South Korea, valued at $2 billion and $2.1 billion, respectively, although one is a joint venture.
       In remarks made in a speech at Harvard earlier this year, Chang Gyu Hwang, Samsung's president and CEO, said he expected revenue from the company's semiconductor operations to grow by more than 25 percent in 2005, to some $20 billion. Those comments were followed by a September promise to invest some $33 billion in semiconductor manufacturing and R&D by 2012, as the company seeks to stretch its lead in the DRAM (dynamic random access memory) and flash memory marketplaces.
       The Austin investment comes at virtually the same time that the company has pleaded guilty in U.S. federal district court in a global DRAM price-fixing scheme, and agreed to pay a $300-million fine. The investigation began in 2002, and has already yielded smaller fines from another Korean company, Hynix Semiconductor, as well as Germany's Infineon Technologies. The federal investigation is ongoing.
       Meanwhile, the Semiconductor Industry Association has fairness on its mind too, and is making its voice heard amid the din of WTO trade talks in the hopes that U.S.-made semiconductors can continue to be competitive and be traded freely without tariff.
       ""Over three quarters of U.S.-owned wafer capacity is in this country despite the fact that three quarters of our sales are outside the U.S. — that means that free and fair market access is vital to us," said SIA President George Scalise in an early October release. "One issue of particular importance to the SIA and its members are talks being held on Non-Agricultural Market Access (NAMA). The NAMA discussions could lead to further market opening for key information technology products. The SIA has supported tariff-free trade in semiconductors and information technology products since its inception — in fact, we worked with the U.S. government to eliminate America's tariff on semiconductors over two decades ago. U.S. companies have the lead in world market share for semiconductors. Where we are allowed to compete on the basis of our technology, price and quality unencumbered by government barriers, we are successful. The NAMA talks are thus very important to our industry and to consumers worldwide who will benefit from lowered cost of access to IT products."
       SIA reported that worldwide semiconductor sales in August totaled $18.6 billion. Total DRAM sales in 2004 were $7.7 billion.

Best Offers
       As if to illustrate its commitment to R&D and to Austin, Samsung presaged its new Austin investment by joining Sematech, the consortium of semiconductor manufacturers based in Austin since 1988. In April, Samsung had separately joined the International Sematech Manufacturing Initiative, a program oriented toward maximizing chip fab performance.
       "The competitive advantages we expect to gain in manufacturing efficiency and advanced technology solutions will set the stage for next generation semiconductors, creating new markets and opportunities in the IT revolution," said Byung-Il Ryu, executive vice president of Samsung Electronics' Semiconductor R&D center, in September.
       Sematech also has strong associations in one of the other leading candidates for this project, New York, which reputedly offered much more cash than Texas did for this plant. However, that state's leading candidate site — Luther Forest Technology Park — is still in the process of putting in infrastructure, while the Austin site might be up and running by the end of 2006. Oregon's package, meanwhile, was offering the use of a fab being sold by LSI Logic Corp. in Gresham. But the Texas offer was the only one accompanied by a delegation visit to the company's Korean headquarters.
       Like the LCD investments, Samsung's memory production expansions continue to occur at home. Part of the big $33-billion growth plan is the addition of eight new lines, as well as one line to be used purely for R&D. When completed in 2012, they will make the company's Hwaseong complex, south of Seoul, the largest semiconductor manufacturing complex in the world, while also adding to the heft of Samsung's operations in Kiheung.
       A recent study of company-sponsored R&D published by U.K. Dept. of Trade & Industry shows that South Korean firms lead all comers in the growth of their R&D investment, spurred by companies like Samsung, LG Electronics and Hyundai. Korean companies in the sample grew R&D investing by 40 percent in 2005 vs. 2001.
       In addition to the manufacturing investment, Samsung earlier this year pledged to invest $5.2 billion, or 9 percent of sales, in its 17 R&D centers around the globe. The company now employs more than 113,000 people in 48 countries, and in 2004 made $10 billion on $55 billion in sales.
       Austin is on its own growth curve. Between 1994 and 2004, the MSA saw its population grow by nearly 43 percent, to more than 1.4 million people, girded by Travis County's own growth of nearly 30 percent in that time frame.
       Advanced Micro Devices, Inc. (AMD) in April 2005 announced that it would create a new 825,000-sq.-ft. (76,643-sq.-m.) campus in Southwest Austin, consolidating its 2,000 employees from 12 different locations. That same month, Freescale Semiconductor, formerly a part of Motorola, announced it had selected Austin over Chicago, Dallas-Ft. Worth and Phoenix as the site of its new world headquarters. The company's HQ currently employs approximately 600. Freescale anticipates hiring 500 more and investing some $600 million over the next decade.
       Looks like the Silicon Hills may be shining again.



©2005 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.