Over the last few years, two major companies — Intel and Taiwan Semiconductor Manufacturing Company (TSMC) — have announced approximately $32 billion in investment in Metro Phoenix, representing a significant expansion of the Arizona semiconductor industry. In the North Valley, TSMC is dedicating $12 billion to its most advanced manufacturing facility in the U.S. Intel, which came to Chandler in 1979, is spending $20 billion on two new chip factories estimated to create 3,000 jobs.
The semiconductor industry is angling for a resurgence throughout the U.S., with more than $52 billion being allocated by the federal government to support the domestic manufacturing of chips that serve as the technological cornerstone for phones, cars and military equipment. With a history of microelectronics and semiconductors dating back to 1949 with Motorola, the Grand Canyon State is already benefiting from the projected boom in domestic semiconductor manufacturing.
“There are 100,000 jobs in the metro market tied to Arizona’s semiconductor industry,” explains Chris Camacho, president and CEO of the Greater Phoenix Economic Council (GPEC). “There are roughly 27 projects in the pipeline with about 10,000 phase one jobs and over $100 billion of new investment potential.”
Here’s how the Valley positioned itself to become the Silicon Desert and why the passage of the Chips and Science Act further raises Greater Phoenix’s profile.
Arizona’s semiconductor industry
Even though the state has hosted a semiconductor industry cluster for some decades, Camacho notes that was not the headline item for many when discussing Arizona’s economy until recently.
“2008 to 2011 are in the ‘hard lessons’ chapter of Arizona’s history book,” he says. “Over leveraged debt, reliance on residential real estate and addiction to growth were definitions that were bestowed upon us in the national narrative.”
The page was turned in 2011, when leaders came together to pen a new chapter of Arizona’s economy that would have a heavier focus on manufacturing and technology. Doing so required a modernization of the state’s tax system and economic development programs, which Camacho says is yielding results.
“We’re seeing higher wages in terms of the projects and jobs that are created; more capital-intensive companies, exports and everything else we set out to do back in 2011 with the Arizona Competitiveness Package,” Camacho explains.
A standout economic development program created during this era is the Qualified Facility tax credit. The Arizona Commerce Authority (ACA) may authorize up to $125 million per calendar year in tax credits so long as the company meets certain eligibility criteria.
“One of the reasons why I love the Qualified Facilities tax credit is because it requires an upfront capital investment and creating a certain number of jobs,” notes Danny Seiden, president and CEO of Arizona Chamber of Commerce and Industry. “Once a company shows that they’ve hit those metrics, that’s when they receive the incentive from the state. We don’t cut companies a $200 million blank check and say, ‘Come to us whether or not you ever build.’ They must meet the requirements.”
Seiden goes on to explain that since this tax credit’s eligibility requirements — like other incentives offered by the state — are statutory, they’re nondiscretionary. No single government official can dole out the money earmarked for these programs based on their personal whims. Better yet, the incentive is working.
“Qualified Facilities has helped us get TSMC and LG [which is building a battery factory in Queen Creek],” Seiden continues. “My understanding is [the Qualified Facilities tax credit] is almost at its max capacity with all the applications that have come in for it. I think there’s probably going to be an argument to expand that program soon, because so many large companies are expanding and committing to these huge capital investments.”
Craig Henig, executive director and head of MREG’s Phoenix office, says that beyond a favorable business environment, Arizona is attractive for semiconductor developers for other reasons too, such as the reliable supply of power provided by the Palo Verde Nuclear Generating Station, a low propensity for natural disasters, and the state’s commitment to improving and expanding infrastructure.
“Arizona’s semiconductor industry has already been in place here for decades, so we already have a relatively well-trained workforce,” Henig continues. “We also have dedicated university and community college institutions focused on growing this labor pool.”
Partnership focused
Companies that are making multi-billion-dollar decisions on where to locate their next facility have to weigh many factors. State incentives act as tempting carrots, but other important elements such as infrastructure and a talent pipeline are also crucial.
Grace O’Sullivan, vice president of corporate engagement and strategic partnerships at Arizona State University (ASU), is often at the table during large business attraction deals, including TSMC.
“It was a multiyear project in the making before anybody ever heard of it,” she says. “It really was a cross sectoral partnership because companies want to move here only if they can attract and hire talent.”
Prior to the pandemic, O’Sullivan traveled to TSMC’s headquarters in Taiwan with a group of private and public sector leaders and hosted a delegation from the company in Phoenix. Having government, academia and industry all rowing in the same direction was attractive to TSMC and something that stood out as distinctive about Greater Phoenix, she says.
READ MORE: Here’s how ASU is poised to help close microchip manufacturing gap
As part of a working group with GPEC, O’Sullivan is figuring out how to best assist TSMC employees and families who are immigrating from Taiwan with services such as getting driver’s licenses and learning about the schools their children will attend.
“My parents immigrated here from Taiwan in the 1970s. I doubt they had any of this network that was primed to help them be successful,” she says. “We’re really thinking about not only getting [TSMC employees] here, but how they are succeeding and integrating into the community for the long term. It’s beautiful to watch and be a part of.”
Moreover, ASU has a partnership with Intel to advise on the university’s engineering programs, and O’Sullivan says TSMC will also be joining. She adds that another advisory council is being assembled for Arizona’s New Economy Initiative, which aims to strengthen the economic prospects of the state’s residents. One such investment will create three new ASU Science and Technology Centers that will partner with Arizona industry and further solidify Arizona’s position as a semiconductor powerhouse.
“We’ll be getting industry information from all the leading chip makers and suppliers in the region to advise us on the key issues related to talent development and workforce, along with what the industry needs in terms of cutting-edge research and prototyping in facilities,” O’Sullivan says. “We really value that input from industry, so we can make sure that the students and graduates coming out have the latest skill set and are training on the latest tools.”
Federal investment
On August 9, 2022, President Joe Biden signed the Chips and Science Act into law, which dedicates more than $52 billion to domestic semiconductor manufacturing in a showcase of vanishingly rare bipartisanship. The evenly divided U.S. Senate voted 64-33 in favor of the legislation and comes after decades of shrinking domestic semiconductor production. According to a summary document released by the Senate, only 12% of chips are currently manufactured domestically, compared to 37% in the 1990s. Since the onset of the pandemic, purchasing a car, refrigerator or dishwasher has been more difficult due to a lack of semiconductors, leading to backorders and longer wait times.
“For far too long, the U.S. supply of semiconductors has been too beholden to foreign governments and the winds of global politics,” Seiden says. “It’s important to shore up our domestic supply chain so that no matter what happens globally, we’ll never see this sort of supply chain interruption again. By onshoring the production of semiconductors into this country — and really into this state — we will always have a steady supply of these items that are crucial to domestic everyday items and national strategic defense.”
The bill sets aside $39 billion for providing financial assistance to build, expand or modernize domestic facilities and equipment for semiconductor fabrication, assembly, testing and packaging. An additional $11 billion is dedicated to research and development and $2 billion is allocated for the U.S. Department of Defense for national security-related semiconductor applications.
Among other provisions, the legislation will create a 25% tax credit for investments in semiconductor manufacturing and includes incentives for the manufacturing of semiconductors, as well as for the manufacturing of the specialized tooling equipment required in the semiconductor manufacturing process.
From his conversation with folks in Arizona’s semiconductor industry, Camacho says that this federal investment is crucial for advancing their plans. Without programs that reduce costs, the U.S. will struggle to be competitive globally and miss out on transformative growth. “People don’t understand what a generational position we’re in with Intel’s expansion and TSMC,” he notes. “This is like when Motorola came to Phoenix, but on steroids. It will dramatically reshape how global markets think of Metro Phoenix.”
Seiden adds that Arizona’s current position as a semiconductor hub — and an advanced manufacturing destination — did not happen by accident, but thanks to several significant pieces of legislation that have created a favorable business environment. He also hints that there are some companies that have been waiting for this federal legislation to pass before committing to investments in Greater Phoenix.
“I’m an evangelist about this — policy absolutely matters,” Seiden concludes.
