Downturn becomes an opportunity as AMD supplier starts $4.2B chip plant in upstate NY

Despite downturn, AMD supplier starts $4.2B plant

MALTA, N.Y. — Work on a $4.2 billion chip plant supplying Advanced Micro Devices Inc. starts Friday in a woodsy patch of upstate New York — across the Atlantic from AMD’s sister factories and in the middle of a recession.

Even as the United States continues to bleed manufacturing jobs, AMD spinoff GlobalFoundries Inc. and its competitors in the chip industry are sinking billions into U.S. factories.

Analysts say the investments are required for technology companies to be poised for an economic upturn. And the chip industry has found U.S. sites especially important because the government restricts what kind of microprocessor work can be done overseas. Perhaps most crucially, companies rely on the willingness of governments to lure factories with massive incentives. New York committed $1.2 billion to land GlobalFoundries’ factory in Malta.

“It’s kind of like competing for baseball stadiums these days. Cities around the world, regions around the world, are competing for all sorts of manufacturing activity, and semiconductors are high-tech, high-human capital and high wage,” said JoAnne Feeney, senior analyst at FTN Equity Capital Markets.

The United States can be more attractive to chip makers than Europe when it comes to labor laws and environmental regulations, said Jim McGregor, chief technology strategist for market researcher In-Stat. Intel has seven U.S. factories: three in Oregon, two in Arizona and one each in Massachusetts and New Mexico. Even South Korea’s Samsung Electronics Co. makes chips in Austin, Texas.

GlobalFoundries Chairman Hector Ruiz said the state incentives and the company’s desire for a U.S. presence helped lure the chip maker to an industrial park 150 miles north of New York City. Ruiz noted that the chip factory, known as a fab, will be near two research partners: the state-run College of Nanoscale Science and Engineering in Albany, and IBM Corp., which has a facility farther down the Hudson Valley in East Fishkill.

Sunnyvale, Calif.-based GlobalFoundries was spun off recently from AMD, the No. 2 maker of microprocessors, with a commitment from the investment arm of Abu Dhabi’s government to pump billions into facilities in Dresden, Germany, and the new plant in New York.

The Malta factory will play a key role in GlobalFoundries and AMD’s efforts to keep up with Intel Corp., the world’s dominant microprocessor company, with about 80 percent of the market. Intel and AMD have been in a race to continually shrink the circuitry on chips, because doing so enables more transistors to be packed in, making the processors ever more powerful.

The most advanced chips are currently made with transistors as small as 45 nanometers wide, and the industry is gearing up for a switch to 32-nanometer technology. (A human hair is more than 80,000 nanometers wide.)

When production begins in Malta in the second half of 2012, the transistors will be scaled down to 28 nanometers, with the goal of quickly dropping to 22 nanometers.

This kind of cutting-edge design limits where these chips can be made. Under a multinational agreement called the Wassenaar Arrangement, U.S. officials can block the export to China of any machine designed to produce chips smaller than 180 nanometers. U.S. officials want to determine whether the exports have potential military uses before granting a license. Ruiz said the Malta plant could not have been built in China.

New York is keeping its $1.2 billion commitment even as it suffers crushing budget problems. Gov. David Paterson has defended the payout, saying the plant with its payroll of 1,400 will help wean the state from its reliance on the volatile Wall Street sector. The plant also would add a bit of 21st century luster to upstate New York, which has been losing manufacturing jobs for decades. New York had roughly 2 million manufacturing jobs in the 1950s; now a quarter of those remain.

Many economists expect the economy to bounce back by the time the plant opens in 2012, so gearing up now makes sense given the long ramp-up to mass production in the chip business. The strategy of investing during downturns is precisely what Intel does — it announced in February that it was spending $7 billion to upgrade its U.S. factories — and what AMD must do to compete, said Martin Reynolds, a vice president at Gartner Inc.

“There’s a bigger risk in not doing this, because if you land some of those big, fabulous accounts out there and run short on fab capacity, then you’ve got issues,” said McGregor, the In-Stat analyst. “You want to be ahead of the curve.”

Right now, AMD is the only customer for GlobalFoundries. Company officials promise an announcement of a second customer within the next few weeks.

On the Net:

www.globalfoundries.com