$7B Plant Signals Semiconductor Manufacturing's Return to US

Pablo Valerio, International Business & IT Consultant | 2/24/2012 | 18 comments

Pablo Valerio
Six months ago, I wrote a post about why high-tech brands can't manufacture in the US. One of my key arguments in that post concerned a lack of government support: “The US doesn’t have a job-centered economy anymore. It is consumer-centered. The way to fuel the economy is trying to restore consumer confidence and provide cheap credit to encourage spending.”

I still believe that is true, but recently I came across a few hopeful stories of a small change in mentality, both in the business and political environments, which can lead to a significant revival of high-tech equipment manufacturing on US soil.

One example is the semiconductor foundry being built by GlobalFoundries in Malta, N.Y. “The new plant, which is about the size of six football fields, has hired 1,100 workers in the past two years and plans on adding another 300 this year,” Ron Scherer reported this month in the Christian Science Monitor.

One key factor in the plant's location was the nearby Hudson Valley Community College. Its engineering school offers a two-year program on semiconductor manufacturing technology.

Another factor was the support of the State of New York. The region has the infrastructure and plenty of educational institutions to supply skilled personnel, but not many jobs. So the state and local administrations invested in communications and services to attract manufacturing to the area. GlobalFoundries, one of the largest wafer manufacturers, made the decision in 2009 to build the plant, its first in the US, with an initial investment of $4 billion. By the time it is completed, the plant will cost $7 billion and employ nearly 1,500 people. (GlobalFoundries also has plants in Germany and Singapore.)

The new plant will “stand as the most advanced semiconductor manufacturing facility in the world,” Scherer wrote. “It will also be the largest leading-edge foundry in the United States.”

It will cost GlobalFoundries nearly $1 billion more to build the plant in New York than in Asia, but it can make the money back in the form of tax breaks and refunds. Also, many of its customers, including IBM, are happy to get their products manufactured in the West, where intellectual property laws are strongly enforced.

According to the Bureau of Labor Statistics, the US lost 5.7 million manufacturing jobs in the last decade, including 2.3 million during the recession. Some experts say more than half are lost forever. The US added 330,000 manufacturing jobs last year, but the BLS projects that these jobs will not increase this decade.

But some voices are starting to express optimism. Scherer quoted Gene Sperling, director of the National Economic Council, who told reporters last month, “We are the most competitive in manufacturing that we have been for the past two or three decades.”

US officials are changing policies and probably going in the right direction to bring manufacturing jobs back. Two main proposed changes are starting to convince some businesses to consider building infrastructure here.

  1. Eliminating the tax deduction for moving expenses when companies send jobs to foreign countries.
  2. Doubling the tax deduction for advanced manufacturing technologies from 9% to 18%.

And there is the multiplying effect. For every job directly created by a manufacturing facility, there are four or five other jobs created to support it by everything from service firms that provide cleaning, security, and communications to restaurants, housing, retail, etc.

I hope the GlobalFoundries initiative is just the beginning of an effort to bring high-tech manufacturing to the US and Europe, and I hope it brings hope to trained technicians in the West about employment opportunities.

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Joe Stanganelli   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 10:51:55 PM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US
Yes, Anand.  As a matter of fact, in President Obama's recent Google+ Hangout, a citizen complained about her educated, qualified semiconductor engineer husband being unable to find a job.  President Obama told her to send her husband's resume to him personally so he could tout it to companies who complain that there are no qualified engineers in the U.S.
Joe Stanganelli   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 10:49:28 PM
Apple-Foxconn saga
Indeed, Pablo, these developments are both encouraging and especially relevant given the ongoing Apple-Foxconn saga  -- the kind of thing you get when the U.S. can't compete in the global market because of a lack of an efficient supply chain.
fbpmt   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 8:01:02 PM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US
David, the initial successes have all gone for old unused plants, and I think there are many. Conversion is relatively cheap on this level, and so far, seems to be working.

I have my fingers crossed in this effort.
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DBK   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 11:22:24 AM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US

There are a couple of comments about individual's willingness to pay more for quality and service.  This is good news and a philosophy that needs to be more widely adopted.  Socially our challenge is that we have adopted the philosophy that we want it cheap and to last forever.  Not realistic, we need to have a common front and buy locally when ever we can and support our own economy,

Pablo Valerio   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 10:46:21 AM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US
@anand, It does make sense to have advanced manufacturing in the West to protect key technologies and IP.

Moving high-end LCD technology to Asia made Korean and Chinese manufacturers leaders on that field, and now we depend on them to supply the next generation products.

It is going to be more difficult to move final assembly back to the US and Europe, but key semiconductor foundries should be here.
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Anand   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 1:10:53 AM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US
It is really good to know that. with cost rising in asia, bring manufacturing jobs back is good for them.

@singlemud, this strategy is not beneficial to everyone. For example if companies major customer base is Asia then it makes sense to retain the job in asia so that you dont need to ship your end product back to Asia. For example Nokia is planning to move its job to Asia because most of the Nokia customers are from Asia.

David Wagner   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 1:05:57 AM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US
@fbpmt- Agreed, but who is going to pay for all the new building? I hope we can do it.
Anand   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 1:05:33 AM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US
One of the most discouraging things about this to me is that it takes $7 billion to create 2500 jobs.

@David, I totally agree with you. Unfortunately this is the nature of semiconductor industry. It takes lot more investment compared to the other IT industry. Infact its lot tougher to get a job in this field because you have very less vacancies compared to software industry.

Anand   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/27/2012 1:00:52 AM
Re : $7B Plant Signals Semiconductor Manufacturing's Return to US
It will cost GlobalFoundries nearly $1 billion more to build the plant in New York than in Asia

@Pablo, thanks for the post. No doubt this will cost Global foundaries $1 billion more but the advantage is it will help GF to diversify its fab locations. We have seen how fabs were temporarily shut down when earthquake happened in Japan. So I feel all the companies should seriously think about geographically diversifying their fabs.

fbpmt   $7B Plant Signals Semiconductor Manufacturing's Return to US   2/26/2012 8:41:31 PM
RE: $7B Plant Signals Semiconductor Manufacturing's Return to US
@Pablo and @DBK - great and encouraging blog!! About thirty years ago, I was auditing a wafer manufacturer in New England. The yield rate was like 35 - 45%. I was scared to think how they were to survive. Eventually the yields improved but by then the manufacturing process moved out of the area.

@David - do not worry. If they build it, they will come!! and serve. and teacj. and sell. and open boutiques. etc. etc. etc.
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