Wasn't It FABulous?
High Tech Setbacks Spell Economic and Environmental Uncertainty
One balmy evening in early October, Austin entrepreneur Gary Hoover stood in a Northwest Austin bookstore and conjured bleak images of Flint, Michigan, a hardscrabble town of shuttered auto factories and a population on the dole. What he'd like to do, Hoover said, is take a bunch of high tech executives on a tour of Flint -- so they could see firsthand what a depressed industry town really looks like. "I wish," he said thoughtfully, "I could show them what San Jose could look like in a few years without careful planning."
A couple of days later, Hoover was asked if the same grim analogy could apply to Austin's Silicon Hills, where the list of across-the-board casualties continues to mount: Major semiconductor firms are closing factories, companies are either folding or scaling back operations, and more than 200 employers -- from Dell Computers, to Tramex Travel, to Sun City -- laid off 20,562 workers this year. And those are just the well-publicized layoffs. Given these dire circumstances, could Austin end up like Flint?
Hoover hedged at first, perhaps out of loyalty to the town that helped him launch a few enterprises: the successful BookStop chain, which he sold to Barnes and Noble; Hoover's Inc., an online business information company that's still plodding along in spite of things, and TravelFest, an admitted flop. (These days, the peripatetic Hoover is promoting his latest venture: a new book titled Hoover's Vision.)
Hoover would not quite declare Austin on the road to Silicon Hell, but he did offer some parallels between Michigan's big three automakers and the semiconductor industry. "It's good to look at the auto industry because we know how things turned out. It went from being the hottest industry in the land to being the land of factory closures, foreign competition, government regulation, and layoffs," he said. "You know that an aging technology industry is not going to need all of its plants. So what do you do with them? What do you do with the workers? What do you do with the communities? Do they turn to weed-covered fields like we see at Buick City in Flint?"
As it happens, these are the same questions that local leaders and officials at Austin's own big three -- Advanced Micro Devices, Motorola, and Samsung -- are trying to answer for themselves, lest fields of weeds take root. Semiconductor companies -- the old-economy powerhouses of the electronics age -- are in the throes of the most painful downturn in their industry's history.
In September, AMD announced plans to close two aging wafer fabrication plants, or "fabs," which had been consolidated several years ago, and slice about 1,000 jobs from its 4,000-strong workforce during the next nine months. Only one AMD Austin plant, the newer Fab 25, will remain in operation, and that with reduced staffing. Similar measures have already begun at Austin's largest chipmaker, Motorola, where two older fabs were pulled out of commission earlier this year; a third is currently being decommissioned. This will leave Motorola with two chip-making facilities: its Oak Hill location and another, newer facility at the Ed Bluestein Drive campus. Motorola officials decline to divulge the company's local layoff figures, but outside estimates place the number at about 1,000. (Motorola also refused to respond to "rumor and speculation" about the company selling its semiconductor business.) The situation is not much better at Samsung, in Northeast Austin, where 90 jobs were trimmed in September. Another company, Applied Materials, which manufactures the equipment used by chip makers, has laid off 500 workers in response to the industry-wide setback. And similar chip-related woes have occurred at Tokyo Electron Texas, Cirrus Logic Inc., and DuPont Photomasks.
The economic outlook is so gloomy, in fact, that even typically upbeat local economist Angelos Angelou is predicting a slow recovery. "The semiconductor industry goes through a major recession every five or six years," he says, "but this is probably one of the worst recessions, if not the worst, the industry has ever seen." Still, he adds, semiconductor outfits have an innate ability to stomach the crazy cyclical nature of the business. "This industry is accustomed to either growing really fast, or laying off people. There's no middle ground."
Those familiar with the chip-making industry know that the factories and their equipment eventually grow obsolete, rendering the fabs useless as technology advances. While it's safe to say these plant closures come as no surprise -- both Motorola and AMD built their first factories here in the Seventies -- the shutdowns are occurring during a time of economic uncertainty, and that makes the real-time picture appear all the more cheerless. While AMD insiders had for several months anticipated the company's announcement to close Fabs 14 and 15, an internal company memo disseminated in late September alluded to the "difficult decision" to shut down the plants -- as though AMD had only recently arrived at its verdict. (Ron Buys, a hazardous materials engineer in the city fire marshal's office, says AMD informed him of the closures at the beginning of the summer.) "The closures had been planned for some time," AMD spokesman Ron Dusek said, "but with the [economic] situation being what it is right now, we made the decision to accelerate the decommissioning." Had the fabs closed under better circumstances, Dusek added, the company could have spared many jobs by putting employees to work in other areas.
The Sound of Closing Doors
According to the company memo (a copy of which was given to the Chronicle by an employee), the plants are only operating at about 50% capacity "and a further decline is expected." The memo also suggested that the Sept. 11 attack on the World Trade Center also figured into AMD's decision to restructure and trim its operations. That claim was what prompted the angry employee to send the memo to the Chronicle.
Spokesman Dusek defends the allusion to the attack in the context in which it was written: The notation came at the end of a list of economic variables -- a slowdown in information technology spending, a dip in the PC market, declines in the communications and networking markets -- contributing to the drastic downswing in the semiconductor industry.
Despite these series of setbacks, AMD officials say they are still scouting for a location to build its next-generation 300-millimeter fab, and according to spokesman Dan Pickens, they expect to make a final decision some time next year. Yet it's hard to believe that only a few months ago, an almost breathless buzz centered on the prospects of AMD building its new $3 billion project in Austin. Now the topic seems almost an afterthought; clearly, there are too many other things to think about right now. Though AMD has slowed its search process, Austin is apparently still in the running, along with other Central Texas communities. Chamber and civic boosters, when asked, are still convinced that the fab will provide the juice to keep Silicon Hills aglow for several more years. "Economic development is not a switch we can turn on and off. Now is the time for us to be even more aggressive," said Angelou, who as a former chamber official played a key role in recruiting semiconductor companies to Austin through the offer of generous tax abatements and other free services.
Though Motorola and AMD have been here since the Seventies, things really picked up steam in the Eighties and early Nineties with the arrival of more factories and a slew of industry vendors. Chamber officials and civic leaders heralded the arrival of this "clean" industry as the ideal economic base for an environmentally conscious city. In fact, though, companies like AMD, Applied Materials, and Motorola gravitated to Silicon Hills with a great deal of embarrassing baggage, having abandoned disastrous environmental legacies in California's Silicon Valley and Phoenix's Silicon Desert.
Didn't We Mention -- ?
Chamber officials, buoyed by their successful recruitment efforts, said little if anything about our new corporate citizens' ties to EPA-designated Superfund cleanup sites. Massive groundwater and soil contamination in the San Jose area led to much tighter environmental laws in California, and the resulting "toxic flight" of tech companies to friendlier territory, such as Austin. AMD and Applied Materials both have lengthy Superfund rap sheets in California, as does Motorola in Phoenix.
It was this kind of information that frightened residents in the low-income Montopolis-area neighborhoods, where the companies and their suppliers were laying stakes. It was the same old story, said Susana Almanza of PODER, an East Austin activist group devoted to environmental and social justice issues. The companies promised jobs and neighborhood improvements in exchange for letting them introduce hazardous waste into the environment.
"We were more concerned with their level of emissions because they were so high at the time." (The emissions levels have declined since then; see "A Fab Toxic Inventory," right.) As for jobs and neighborhood improvements, Almanza said, the companies all came out ahead. "They got cheap labor, and they got a lot of free infrastructure like sidewalks and sheltered bus stops. These are things that we had been asking for for a long time, and then AMD comes in, and they get it all for free." All told, Almanza added, "I don't think the residents are any better off than they were before. There have been some new apartments, or condos, built in the area, but nobody I know can afford to live there."
In addition to using enormous amounts of hazardous chemical resources in the manufacture of microchips, the companies also require huge volumes of water and are among Austin's biggest industrial users (see "Drought? What Drought?," p.25). These amounts are only expected to grow as technology advances. The new AMD facility that chamber officials hope will end up here, for example, is expected to need as much as 4 million gallons of water in a single day.
The Silicon Valley Toxics Coalition, a California-based watchdog group that monitors the electronics manufacturing industry, recognizes that strides have been made during the past decade to curtail toxic chemicals and implement state-of-the-art water recycling systems. Yet on a global scale, the coalition points out, American-based companies strive harder to meet higher environmental standards in Europe, for example, than they do in the less-stringent United States.
"Traditionally, the trends for environmental performance have been driven by a lack of strenuous environmental regulations, which is one of the reasons they're in Asia," said SVTC Executive Director Ted Smith. But there are encouraging trends, he added. "The industry is using fewer chemicals, and the industry has set some roadmap goals to reduce their environmental impact by using less energy and less water."
One other unique trend in the semiconductor industry, Smith pointed out, is the transition to "fab-less" companies that simply design the chips and then "outsource" the dirty work -- the actual manufacturing of the chips -- to far-off places like Taiwan and Singapore. Austin already is becoming a global hub for the new fab-less industry, with an estimated 20 companies doing business here.
As the semiconductor economy stutters and the industry contracts, more companies -- either for economic or technological reasons -- have little choice but to shutter their factories. But years of using highly toxic chemicals in the chip-making process don't permit managers to simply padlock the doors. Rather, the utmost care must be taken to decommission the facilities, the equipment, and the fabs' intricate network of piping, plumbing, ventilation units, and waste treatment systems.
Stuttering and Shuttering
Fortunately, because of the high risk of groundwater and soil contamination, semiconductor companies in Austin no longer maintain underground storage tanks. As a 1993 Austin Business Journal article pointed out, leaks discovered in underground tanks at Motorola's Ed Bluestein site in 1981 forced the company to remove the contaminated soil and raise the tanks above ground.
While Motorola's old fabs are now being used partly as office space, AMD officials say they have not yet decided what to do with their company's old factories. "Our preference would be to sell the fabs to another semiconductor company that could use the employees already working there," Pickens said. Failing that, he said, the vacant plants offer "limitless possibilities" as office or warehouse space
But decommissioning a site is no easy task; the process can take from 12 to 18 months, with costs ranging from $500,000 to $3 million, depending on the size of the plant. Hector Del Real, whose California-based company, One Environmental, specializes in fab closures, says the decommissioning process carries an enormous responsibility. "It's a financial liability more than anything else," Del Real said. "If a new company moves into the fab and doesn't bother to do an environmental assessment on the place, they could end up having to pay to clean up something that they had nothing to do with."
That's why closure procedures are so important, he added. "That's where you determine if there is any contamination -- and I'll tell you, anything is possible, even in the cleanest fabs." It's even possible, he said, for contamination to go undetected for long periods, particularly in underground areas with little visibility.
"Acids and solvents are usually transferred through underground pipes. Any leaks in pipes could contaminate the soil," he said. "Any groundwater contamination would depend on how deep, or how far below ground, the water is."
California's series of fab closures have been good for Del Real's business. "There must have been 200 to 300 fab closures last year in Central California alone, and my company handled about 14 of them," he said. "Some of them closed because of hard times, some because their technology was obsolete, and others closed because the market was flooded." Business isn't quite as brisk this year. "We've only done a couple of closures, which is kind of frightening because it means the economy is so bad that the companies are trying to hold on to their money. They're waiting to see what will happen."
Things aren't much better in Austin, although the troubles seem to run on a much smaller scale than they do in California's vast silicon gulch. Gary Chapman, director of the LBJ School's 21st Century Project at the University of Texas, likens this period to "the perfect storm," in which there is no safe harbor. "The big variable that no one can predict or even anticipate is the geopolitical factor, especially in the midst of this war on terrorism. If there is another big shock," he said, "that could keep everyone in a state of suspended animation."
Will this economic downturn mark the end of an era for Austin's semiconductor giants? Gary Hoover, the entrepreneur, again looks to Michigan's big three auto giants. "Just look at the way the automakers built new plants, with robots -- but they usually did not build them in the same towns where the old plants were," he said. A more important question for Austin is, will people have the right job skills? "If our skills are very narrow and limited to one area of technology, that's not good. We won't need fab plant operators and wafer guys and gals. We will need good learners."
Otherwise, Austin's future could look more like Silicon Hell -- or even Flint, Michigan -- than Hoover or his corporate compatriots may be ready to acknowledge.