Chipmakers choose Phoenix desert as home
10/01/1997
John R. Ward, Albuquerque, New Mexico
Sunswept deserts, wind-sculpted mesas, and sandstone towers of every shape compete with ancient towering saguaros. In stark contrast, an emerging desert of silicon, an impatient semiconductor industry, grows to exceed even the most optimistic predictions. For Arizona in general, and the Greater Phoenix area in particular (known locally as Silicon Desert), the reality seems to be as good as the rhetoric.
Arizona is one of the fastest-growing states in the US with growth rates for population, labor force, and job creation well above the national average. Job creation in 1996, for example, recorded a gain of 4.2%, considerably higher than the national average of 1.6%. In spite of a slowdown in the semiconductor industry from 1987 to 1992, the indicators point upward. Major companies like Motorola, Intel, Microchip Technology, Sumitomo Sitix, Vivid Semiconductors, and Burr-Brown are representative of the growth-oriented manufacturing companies driving the Arizona economy (see table and Fig. 1 on next page). Support industry companies like SpeedFam, Cerprobe, and Integrated Process Equipment Corp. (IPEC) add to the remarkable surge in manufacturing expansion.
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In 1940, Phoenix was a farm community of 65,400 people. Today, Phoenix is the seventh largest city in the US, boasting a population of 1.1 million with the greater metropolitan area supporting close to 2.5 million. The labor market is the fifteenth largest in the nation with an employment base of a million jobs and expectations of 52,000 new residents each year for the next 15 years. The median age of the area's population is 32, lower than the national average. Unemployment over the last few years is running at a rate between 3.3% and 5.2% (see Fig. 2 on p. S10). According to local forecasters, the population of metropolitan Phoenix is projected to grow to 3.2 million by the year 2000.
The majority of semiconductor industry growth is centered around the Greater Phoenix area, which includes the now blended towns of Mesa, Chandler, Tempe, Gilbert, and Scottsdale (see above). Chandler, recently ranked as the third fastest-growing city in the nation, is the current pacesetter. With a population of over 150,000, Chandler is the home of Intel's newest 1.5 million ft2 Fab 12 (50% up and running) for Pentium and Pentium Pro processors. Intel's Ocotillo facility in Chandler is shown in Fig. 3. Intel has 7972 employees (including the existing Fab 6) with an expected growth rate of 15%/year. Microchip Technology, fourth fastest-growing company in Arizona, has facilities in Chandler and Tempe, employing 1050. SpeedFam is celebrating the grand opening of its headquarters building in Chandler (see "Risks and rewards: SpeedFam" on facing page). In Phoenix, Sumitomo Sitix just opened a $500 million, 510,000 ft2 facility that will have 400 employees.
What brings semiconductor companies and their supporting suppliers flocking to the Southwest? From the perspective of the worker, it is quality of life, employment opportunities, cost of living, and a renowned climate. From industry's point of view, the reasons for building a plant in the West are reliable power, water resources, qualified people, and a pro-business atmosphere.
 Figure 3. Intel's Ocotillo facility in Chandler, AZ, rises from the desert. (Photo courtesy of Intel Corp.) |
The burgeoning industry has also generated intense local competition for talent. "Ten years ago, semiconductor companies could hire high school students," Jeanne Forbis, media relations at Intel, explained. "Now they need to have a two-year associate degree to handle the technology of the production lines." The Sematech partnership/consortium of US semiconductor manufacturers assists with formal programs to recruit students for the industry. Forbis continued, "Intel, along with other manufacturers, has partnered with six community colleges to increase the number of work-ready technicians. The two-year programs prepare students for positions in wafer fabrication, assembly and test, facilities maintenance, and mask design."
 A view of the Chiricahua Mountains in Southeastern Arizona. (Photo courtesy of the Arizona Office of Tourism, copyright Rainer Hackenberg) |
Critical to the semiconductor manufacturing process is the availability of water. A severe drought in the late 1890s led Arizonians to solve the area's water problem. With much political effort, the Roosevelt Dam was completed in 1911. The water management system created by the Roosevelt Dam allowed opening the area to industrial promise (Fig. 4). In those days, daily existence depended on the management of water. In 1947, a plan for the Central Arizona Project (CAP) was introduced to transport Colorado River water to central Arizona. It wasn't authorized until 1968. Later, in the 1980s, the Salado Project to turn the Salt River into a wonderland of streams and lakes became a magnet for growth. The urbanization of the desert continues to this day, thanks to visionary water management legislation.
With the great dusty silence of the desert nearby, the question of water supply is paramount. The Arizona Department of Commerce now reports an abundant supply. Dan Dever, senior VP, Greater Phoenix Economic Council (GPEC), claims over a one-hundred year supply. The Arizona Department of Commerce reports, "Ample water supplies to support the growth of Greater Phoenix are available well into the twenty-second century." Water sources include seven reservoirs, local groundwater aquifers, and Colorado River water available through the CAP canal. The optimistic predictions of adequate water supplies represent a history of dealing successfully with water issues.
To insure that the optimistic predictions continue, the Arizona legislature has passed a law that after the year 2010 no more water can be taken out of the groundwater resource than is being put back. Since the 1980s, water conservation has been a voluntary measure throughout the community. The semiconductor industry response is exemplified by Intel's intense water management and environmental program.
Intel uses a highly efficient reverse osmosis (RO) and deionization system to remove dissolved salts from water (Fig. 5). The system, a cooperative effort between Intel and the city of Chandler, is housed in a $27.5 million, award-winning facility paid for by Intel. The plant is the first of its kind to treat industrial wastewater with RO and return it to a community water supply. Water from Fab 12 is sent to the plant, where tiny membrane filters, cleaned continuously to provide drinking-water-quality output, process it through RO. A portion of the treated water is then injected back into the local aquifer through a series of four 400–600 ft wells several miles away from the treatment facility. This reinjected water offsets groundwater that the city removes at certain times of the year to augment its water supply. Another portion of the treated water is gravity-fed to Chandler's wastewater treatment plant for further processing. About 75% of the one million gpd that come to the plant is recharged; the plant's capacity is 2.8 million gpd.
In addition to improving the process of creating pure water, a new system for wet benches has been designed that will reduce water use 50%. Recycling wastewater is another measure taken by Intel. Fab 12 accepts effluent from one of Chandler's wastewater treatment plants and uses it in the cooling towers and for irrigation to support the natural desert landscaping on the site. Intel's Jeanne Forbis said, "In 1996, the water treatment facility that Intel funded began operation and now treats more than 1.5 million gallons of Intel's pretreated wastewater daily, bringing it to a level better than drinking water quality and allowing the city to reinject it into the groundwater."
Forbis explained that Intel is also a leading participant in Project XL, an experimental program sponsored by the US Environmental Protection Agency (EPA). Intel's Fab 12 is one of twelve selected by the EPA. All regulated air, water and waste emissions, and other environmental goals were integrated into a single master plan. As a result, Intel has been preapproved to add manufacturing capacity when needed (see "Project XL at Intel: Improving environmental protection").
Phoenix has failed to meet the government standards for particulates in the air, which limits industries that can locate here. Fortunately, most semiconductor companies have the technology to stay below those limits. Consequently, potential newcomers need to be aware of these limitations.
Arizona does have some serious competitive challenges from the standpoint of financial incentives. Business, real, and personal property taxes appear to be primary factors leading to the overall business tax burden. The city and state have usually dealt with tax issues on a case-by-case basis. Intel, for example, has been able to get a ruling allowing preferential treatment for their cleanrooms expenditures.
The primary tool that has helped a few companies is "Foreign Trade Sub-Zone" status. It allows companies that manufacture in Arizona and export a large percentage of their product to have an assessment rate of 5% instead of the 25% that is usually assessed to this manufacturing class. Other capital-intensive, high-tech companies are pressuring the state to address tax incentive issues across the board.
Microchip Technology Inc., founded in 1989, is the fourth fastest- growing high-tech company according to the Arizona Business Journal. According to Eric Sells, public relations manager, "While the overall chip market slumped last year, Microchip sales grew 17% to $334 million. We have just invested $137 million to expand the Fab in Tempe, which includes expanding the line from 150- to 200-mm wafers." In describing the industry, Sells continues, "The biggest challenge we face is keeping up with planned growth."
Sumitomo Sitix Corp. recently completed construction of a processing plant in Phoenix. Surprisingly, Sumitomo experienced numerous negative outcries concerning water use from local media in spite of the fact that Sumitomo had selected Arizona over Oregon because of readily available water.
"Vivid Semiconductor," said Amy Irwin, director of business retention and expansion at the Phoenix Chamber of Commerce, "is growing by leaps and bounds." Founded in 1993 and funded by two venture capitalist firms, its central office, design, and test facilities occupy 20,000 ft2 in Chandler. They are adding another 25,000 ft2 this year.
According to Donna Higgins, Vivid's senior marketing coordinator, "In April of this year, we had 7 employees; we now have 55. Vivid developed direct-drive technology column drivers for the highly competitive LCD Displays market by supplying products to Asian companies in both Japan and Korea. The low power of our drivers is fueling our growth."
While the Greater Phoenix area is recognized locally as "Silicon Desert," Tucson is not included in that reference. Semiconductor manufacturing in Tucson, while distinctly separate, also signals growth. Burr-Brown is a good example. J. Scott Blouin, CFO at Burr-Brown said, "Uour last two years have been the most successful. At 41 years, we're one of the oldest semiconductor plants in Arizona. Our facilities of 200,000 ft2 house over 1000 employees. Our worldwide sales are in excess of $128 billion and we're unique with our analog and digital signal ICs used in electronic signal processing. Our major challenge is to keep pace with the continuing changes in technology."
According to Dan Dever of the GPEC, "One of the advantages of a critical mass of fabs is the attraction of other businesses. We are still seeking semiconductor companies but are also targeting equipment manufacturers who support this industry. They also fuel growth."
Integrated Process Equipment Corp. (IPEC), semiconductor equipment supplier of chemical mechanical planarization (CMP) and the number one fastest-growing high-technology company in Arizona, attributes its growth to an emerging market. As Chuck Hannes, director of marketing tells it, "CMP is new and not new. Integration, the driving force in the semiconductor industry to get smaller and faster chips by integrating stacks, has put the same pressure on CMP tools. We have had to follow suit by integrating CMP into the fab process so it is seamless. The biggest industry challenges we see are handling new process materials like copper and tungsten. The move to 300-mm wafers adds another dimension."
Jacquelyn Stewart, Cerprobe Corp. marketing development manager, said, "Cerprobe is the ninth fastest-growing high-tech company in Arizona, supplying high-performance probe cards and interface systems used in the testing of integrated and hybrid circuits. Founded in 1976, we went public in 1983 and recently completed a new 83,000 ft2 building in Tempe. We have 200 employees." Cerprobe acquired Silicon Valley Test and Repair Inc. (SVTR), a company specializing in refurbishing and upgrading probing equipment, which was relocated to Tempe. Cerprobe is typical of support companies that supply the multiplier effect.
Another contributor to the desert growth is support from community organizations like the Phoenix, Chandler, and Tempe Chambers of Commerce, GPEC, the Arizona Department of Commerce, and the universities and community colleges. The governor's "Arizona Science and Technology Council" and the "Strategic Partnership for Economic Development" are also part of the strategic team helping to maintain the current momentum.
Phoenix's "Silicon Desert," a small beachfront on the shores of innovation and technology, has a giant reach worldwide through the international interests of the companies that form its critical mass. It has learned one lesson well from the desert environment — spirited survival. For an industry built on sand, Silicon Desert is in the chips.
John R. Ward is a freelance writer and business consultant with Branyon-Ward & Ward. He can be reached at ph/fax 505/822-0717.
Risk and rewards: SpeedFam
For a company that has grown at a slow, controlled rate for 28 years, the last five have been a whirlwind — a 40% leap last year alone. According to SpeedFam Chairman/CEO James N. Farley, "This year's growth in revenue and earnings was largely driven by sales of chemical mechanical planarization (CMP) systems to the semiconductor device market." CMP has been around a long while, but rapid changes in technology have given it new life.
Besides phenomenal growth, SpeedFam has another reason to celebrate. This month, in Chandler, AZ, SpeedFam celebrated the grand opening of its new headquarters building, a 136,000 ft2 research, testing, training, and manufacturing facility with over 400 employees (see figure). The facility features Class 10,000, 1000, and Class 10 cleanroom labs, a dedicated software development lab, reliability testing, and training areas for different tools.
 SpeedFam's new headquarters in Chandler, AZ. (Photo courtesy of SpeedFam) |
Originally incorporated as Speedlap Corp. in Illinois in 1959, the company adopted the SpeedFam name in 1993. SpeedFam designs, develops, manufactures, and services CMP systems used in the fabrication of semiconductor wafers and thin-film memory disk media.
In the early 1990s, the company decided to enter the CMP market to leverage its expertise in polishing. Steve McGrady, SpeedFam international marketing manager, explained, "CMP was used by IBM and Intel in the 1980s, but it wasn't until about three years ago that significant adoptions in fabs began to occur. In the past, simple chips and devices had only a few layers, and variations in these layers did not create major production problems. (CMP slurries are used in conjunction with CMP equipment to grind down and polish silicon wafers. This is usually done after metal layers have been deposited on the silicon substrate.)
Semiconductor manufacturers, in response to market demands, are required to put more and more in less and less space. These changing requirements create denser, more complex devices and a manufacturing challenge. Within advanced ICs, there is a requirement that each layer be extremely flat or planar, in effect, creating the need for CMP. New integrated substrates add to the challenge.
"CMP is a dirty process," says McGrady, "and for years it was performed outside the cleanroom. The challenge for the industry has been to integrate the CMP process seamlessly into the semiconductor manufacturing stream."
The success of CMP as a process and the market numbers explain why competition is multiplying. "Worldwide, there are probably 200 fabs. Each fab can use 4–20 systems. It is estimated that 60% of these fabs are currently evaluating CMP. For SpeedFam, CMP was simply an extension of our core business," said McGrady. Industry projections see a $1.2 billion market by the year 2002.
Why an Arizona location? "The company decided to move its headquarters from Illinois to Chandler for several reasons. Chandler was growing as a semiconductor base. It was convenient to Silicon Valley and other semiconductor locations, and we already had a small sales and service facility operation, " said McGrady. "Besides, the quality of the work force is good, even though competitive. There is very little employee pirating. At the same time, the close proximity to a growing semiconductor industry, including Intel, Motorola, and Microchip, made economic sense."
McGrady explained that there are many reasons why SpeedFam is the company it is now. "We were one of the first companies in our line of business to organize globally. With service and sales centers already established worldwide, we had an international infrastructure in place....Secondly, we never strayed from our core competencies of lapping, grinding, and polishing." SpeedFam has facilities in Japan, China, Singapore, Korea, Taiwan, Hong Kong, Thailand, India, England, and Germany.
"We develop roadmaps for each of our major product groupings," said McGrady. He explained that two research and development facilities, one in Japan and one in Chandler, help to maintain the technology required.
SpeedFam International's 1996 fiscal total revenue increased to $120 million, more than doubling that of the previous year. SpeedFam Co. Inc. Ltd., their Far East venture in Japan, increased to $160 million, up 48% from 1995. According to Farley, "The global partnership maximizes the resources of the company and provides competitive insights to worldwide trends and developments." SpeedFam is the twenty-fifth fastest-growing company in the state. Another healthy sign is competition, companies listening to the same signals. One of SpeedFam's major CMP competitors, IPEC, is located in neighboring Phoenix.
SpeedFam attributes its health to its deliberate strategy of weathering slight downturns that might occur in one of its many markets. For example, when the semiconductor equipment sector experienced a well-publicized downturn last year, growth in complementary areas like CMP in the semiconductor and disk media industry helped keep the momentum in the right direction.
"We can't afford to sit idle," said McGrady. "A lot of times success breeds complacency and management doesn't want to see that happen here." Chandler and Phoenix seem determined to keep new companies coming. "What's happening now is that a great number of equipment manufacturers, like ourselves, are coming to support the semiconductor industry and that helps us all. You know — the trickle-down effect. This industry is capital intensive. So far, CMP has been the greatest risk for our company and also its greatest reward."
Project XL at Intel: Improving environmental protection
Project XL (eXcellence in Leadership), introduced by President Clinton in 1995, is an innovative approach to corporate environmental responsibility. Rather than simply complying with government regulations, participating firms, in cooperation with local communities, commit to developing new methods of environmental protection that will meet or exceed regulatory requirements. The long-term goals of the program are to create a clean environment at a low cost while maintaining high economic growth.
Intel's Fab 12 in Chandler, AZ is one of a number of businesses selected by the US EPA to participate in the experimental pilot program. Eliciting community involvement through a series of public forums, including internet interaction, Intel formulated an environmental management plan that incorporates all regulated and nonregulated environmental goals into one package. With this plan in place, Intel then signed an agreement with the US EPA in 1996 to manage all of its environmental performance requirements at Fab 12. The plan calls for the establishment of site-wide emission caps for all air pollutants at minor source levels; the establishment of a production-based performance standard and environmental education and mentoring programs; and voluntary water conservation and reuse, solid waste and chemical waste recycling, storm water management, and employee commute reduction.
For successfully implementing these improvements in environmental protection, Fab 12 has received approval from the US EPA to expand its manufacturing capabilities when necessary. The community surrounding the facility has also benefited from higher environmental standards it helped to create.