New York’s Bet Pays Off

George Pataki, the former governor of New York, gave an interesting speech last week at the groundbreaking ceremony for GlobalFoundries, which is building a fab at Malta, N.Y. in upstate New York near the horse-racing mecca of Saratoga Springs. Pataki recalled a 1994 meeting with Lou Gerstner, the former IBM CEO. IBM, Gerstner said, was quietly moving employees out of New York to lower-cost states. Gerstner told Pataki the company would move its headquarters to Connecticut unless New York came up with financial incentives for IBM. The figure of a billion dollars was mentioned, and Pataki said, “We can do this (a billion) if you are by our side.”

While Gerstner was asking, Alain Kaloyeros, now the senior vice president of the Center for Nanoscale Science and Engineering, was painting a vision for semiconductor-related “nanoelectronics” research at the University of Albany.

Next came Advanced Micro Devices, which sought to build Fab 4X somewhere that would support the cost of the fab. Pataki recalled that he spent “many long hours” talking to Kaloyeros, AMD CEO Hector Ruiz, IBM’s John E. Kelly III, and others key figuers. Pataki became convinced the AMD fab was “a big project, the kind that could truly transform” the upstate N.Y. economy. The competition was global; Pataki said the German federal state of Saxony was New York’s “No. 1 competitor” for the AMD fab.

N.Y. State Senator Joe Bruno, recently retired, was listening to Kaloyeros, and became convinced that the only way to replace the old-school manufacturing jobs was to jump on the semiconductor bandwagon. With New York spending heavily on education, Bruno, Pataki, and other N.Y. leaders reasoned that a chip fab would keep many of the bright young engineers and scientists in the state, working and generating taxes.

The Empire State thus far has put up $1.37B of tax dollars in support of the Malta fab, which is a $4.2B fab. Fortunately for New Yorkers, the Abu Dhabi Technology Investment Co. (ATIC) decided to invest heavily in GlobalFoundries, making an initial $6B investment in the foundry that is likely to increase. At the groundbreaking ceremony, Ibrahim Ajami from ATIC said the oil rich state looks upon GlobalFoundries as a long-term investment, with at least a 20-year view.

Things worked out well for New York, and likely saved AMD. The stars aligned. As the outspoken U.S. senator from New York, Chuck Schumer, said, New York’s subsidy is “going to be worth every penny, resulting in tens of thousands of jobs down the road.”

Things worked out differently for the state of Texas. In 1988, Texas attracted Sematech to Austin. A decade ago the Lone Star State found itself in a tug-of-war with New York as it offered Sematech a dollar in subsidies for every 50 cents the consortium spent on new tools. With a new clean room in Albany, subsidized equipment, and other incentives, CNSE officials now confidently expect the remaining portion of Sematech not now in New York — the front-end transistor research program — to move to Albany once the front-end R&D effort moves fully to 300 mm wafers.

Texas answered by offering Texas Instruments a similar deal in Dallas to the one that New York was offering to AMD in Albany. Texas and TI officials came up with a grand plan to boost the engineering curriculum at the University of Texas at Dallas (UTD), subsidize the building of a 300 mm fab in nearby Richardson, Texas, and keep Texas at the forefront of chip manufacturing technology.

Albany Nanotech, the GlobalFoundries fab, and IBM’s R&D infrastructure, have progressed, probably beyond the wildest dreams of Kaloyeros, Bruno, Kelly, Pataki, and others. The Empire State’s grand plan, fueled in part by the high N.Y. state income tax and IBM’s commitment to semiconductors, drew an ace-in-the-hole when Abu Dhabi stepped up to the plate. The Albany region is likely to recover the prosperity it had in the 19th century, when another state-supported project, the Erie Canal, brought manufacturing to New York.

It now appears, as N.Y. Gov. David Paterson said, the Malta fab will be “a huge job creator” for the economically stressed upstate N.Y. region. “Targeted investments in strategic industries,” Paterson said, can benefit taxpayers.

That sounds good, and it worked out well for New York. In the case of Texas and TI’s Richardson fab, things turned out differently. The Texas public investment has largely gone to waste as TI made a strategic decision to rely on foundries. But as any Saratoga Springs gambler knows, some horses pay off, and others don’t.