Arizona SciTech Festival - AZ Business Magazine January/February 2012

Critical trends shape the technology landscape in Arizona

Unless partisan politics in Washington drives the economy back into a recession, there are critical trends in the technology industry that are pointing to continued slow but steady growth for Arizona.

Most recently, the Semiconductor Industry Associated reported that U.S. semiconductor sales in August increased by 23.3 percent compared with August 2012, and global August sales were 1.3 percent higher than the previous month’s total of $25.53 billion. This makes the sixth consecutive month of growth globally.

The news is positive for the Phoenix area, which employs close to 20,000 workers in the industry at companies like Intel Corp., Microchip Technology and ON Semiconductor. The ability to sustain growth in this sector will hang in part on whether or not consumers open up their wallets and spend on electronics during the critical holiday period.

Particularly vulnerable to austerity measures out of Washington, our Aerospace & Defense industry could certainly feel the impact in terms of lost jobs. The long-term outlook remains strong, however, as Arizona remains home to the some of the most renowned names in aerospace and aviation with local presence that dates back to WWII.

A technology trend that is giving Arizona a big boost, as highlighted by new research from Savvis, is the major shift in IT infrastructure models. Nearly 90 percent of enterprises are using cloud services today according to a Savvis report, but only five percent of enterprises depend on the outsourced cloud for the bulk of their IT resources. The report goes on to predict that scenario will change dramatically over the next five years, leading to the outsourced cloud as the dominant model.

With our low catastrophic risk and predictable climate, Greater Phoenix has long been a popular location for datacenter companies and the numbers will most certainly increase. This is especially predictable given our modestly priced power costs and a package of incentives which became law this year. Cited as “a quantum leap forward” by Jim Grice, a partner with Lathrop & Gage LLP and a primary architect of the bill, this important legislation was advanced by the Arizona Technology Council in partnership with the Arizona Data Center Coalition.

The rise of the innovation economy is another important trend. A report from the Kaufmann Foundation showed Arizona had the highest entrepreneurial activity rate of any state in 2012. A white paper released by the same Foundation in September of this year ranks Phoenix as 13th among the top twenty large metropolitan areas and metropolitan divisions by high-tech startup density in 2010.

Entrepreneurs make Arizona’s economy stronger by creating jobs and with new players emerging every day, the innovation ecosystem in Arizona will continue to grow and improve. The area of healthcare innovation is a great example. Arizona is fast becoming a hub with top research institutions like TGen, world-class healthcare brands such as Blue Cross Blue Shield AZ, Cancer Treatment Centers of America and Mayo Clinic, and well-funded startups like WebPT, GlobalMed and others.

One trend not in Arizona’s favor has to be the continued loss of rebates and other incentives in the Renewable Energy sector. The economics given this point of time has made it particular difficult. As a result, residential solar will continue to struggle in 2014, with utility scale solar suffering less.

Arizona needs to continue to prepare for these trends and possible disruptions – externally and internally generated. Our focus needs to remain on ensuring that our workforce is prepared for the opportunities to come by updating the skills they need now. We also need to keep our lawmakers and community informed of the importance of technology to the growth of our state so that Arizona can build an economy based on high growth industries with higher than average wages. Let’s hope Washington comes along for the ride.
Steven G. Zylstra is president and CEO of the Arizona Technology Council.