Never mind that Korea's Samsung hasn't even definitively decided to build the plant. Or that the company might simply add another chip-fabricating facility to its 14 fabs near headquarters in Seoul. Or that Samsung's execs may figure China is the best site -- since it would neatly position Samsung in the middle of the world's fastest-growing electronics hub. While Austin and Albany know the odds could turn against them, they're furiously bidding up the financial incentives designed to attract the Koreans.
Austin, the site of Samsung's only existing U.S. fab, is putting together a package of $225 million in tax relief and other goodies, spread over 20 years. The City of Austin and Travis County just voted to ante up some $100 million. State and school district officials are expected to come up with the rest of the incentives by the end of September. This is big money in a state that traditionally hasn't had to spend much to attract businesses and one where a lot of folks consider such incentives unseemly corporate welfare at a time when state finances are tight. The Republican-controlled state government can't even come up with the money or a plan for financing the state's strapped schools -- despite two special legislative sessions this year.
But there is surprisingly little opposition so far to spending what it takes to get Samsung. Austin knows that despite a recent investment of $500 million, Samsung's existing Austin plant, which employs more than 900, is middle-aged -- with a life expectancy of only a decade. Just as important, Austin sorely needs to regain some of the Big Mo in tech that it had in the 1990s. Its early success in semiconductors helped attract hundreds of other tech ventures and, along with PC juggernaut Dell Inc.'s () phenomenal success, made Austin one of the country's economic hot spots, with 5% annual employment gains throughout the decade.
But those were the good old days, before the tech meltdown. Since then, Austin has seen its number of fabs drop from 13 to 8 -- and its chip-industry workforce shrink 38%, to 14,900. Adding to the pain, Austin finds itself in a whole new ball game, where the competition to lure high-tech jobs has become more global and intense than ever before. One wake-up call came in late 2003, when Advanced Micro Devices Inc. (), thought to be a loyal Austin chipmaker, chose Dresden, Germany, for its new fab, after being lured with $1 billion in incentives.DEEP POCKETS
The rival roiling Central Texas comes from a bit closer to home. It's George E. Pataki, New York's governor. He's taking direct aim at Austin in his effort to establish Albany, the state capital about 150 miles north of New York City, as a prime venue for technology development. And in recent years he has created powerful momentum. His coup came in 2002, when International Sematech (for semiconductor manufacturing technology), a research and development consortium made up of a dozen giants including IBM (), Intel (), and Samsung, chose the University at Albany as home for a $400 million research center.
Sematech has made its home in Austin since 1988 and has been a key building block for tech development. Pataki noted in his announcement how the original Sematech helped the Austin area double its population in little more than a decade, attracting 200 chip-related companies and 450 software-development outfits. Kicking a little dust in Austin's face, Pataki also said he was hiring Angelos Angelou, an Austin consultant who had been a driving force in recruiting high-tech companies to Texas.
Now, with Samsung's next plant in the balance, Austin is concerned that it is up against a New York with deep pockets and decent momentum. The Pataki forces, after committing more than $200 million to Sematech, have now prepared a package with Samsung's name on it totaling an estimated $300 million.
Winning the Samsung plant may not be life or death for Austin's high-tech future, but it's mighty close. The plant will use the latest semiconductor technology to carve chips out of wafers 300 millimeters in diameter, up from 200mm for the previous generation. The bigger wafers accommodate at least twice as many chips for essentially the same cost as the smaller wafers. That extra efficiency means 300mm fabs can quickly render the older plants obsolete.
Will Wynn, the mayor of Austin, is determined to secure a prime place for his city in this new world. He calls winning the Samsung deal "crucial" and not only because of the jobs at the facility itself. Such a plant also spawns supporting businesses in software, chip equipment, and so forth, and helps workers develop tech-related skills. "Austin was extremely successful in first-generation technology," says Wynn. "The question now is: Are we going to be successful in the second generation?"
Wynn has helped rally support for the Austin financial package and has led an unrelenting sales effort. He honored Samsung's recent investment in its existing plant by presenting H.K. Park, president of Samsung Austin, with an Epiphone guitar, along with a proclamation that "Austin and Samsung have truly made great music together." Texas Governor Rick Perry visited Samsung's Austin plant this year to sign into being a $200 million Emerging Technology Fund, for financing Texas industry.
Government incentives to attract businesses have long been controversial. But in the chip industry, states seem to have little choice if they want to be contenders. The Semiconductor Industry Assn. (SIA) argues that tax breaks and other financial incentives are the primary reasons that two-thirds of all new chip capacity is being built in Asia, particularly in China. In a study of the issue, the SIA says that the costs of a fab over 10 years are roughly $1 billion more in the U.S. than in Asia. About 90% of that difference comes from tax benefits and capital grants, while labor costs account for a mere 10%. That's why the SIA encourages the kind of assistance Texas and New York are offering and is pushing for federal measures, such as making the R&D tax credit permanent.
For now, Samsung isn't showing its cards. It acknowledges that part of the $24 billion committed to future tech investment could go to build a 300mm fab, which would be its fifth, and that it is looking at lots of sites. Local Samsung officials say they have been happy with Austin and that the locale has pluses such as qualified labor and plenty of the electricity and water that are needed for chip fabrication -- but that a decision will be based on many factors. No one knows whether Austin, Albany, Korea, China, or a wild card will win the prize. Still, there's already one sure winner in this game: Samsung. Texas Hold 'Em is much more fun when you know you'll grab the pot. By Mark Morrison in Austin, Tex.