Bid to keep Sematech invokes national security

Proposal for government foundry shows extent of Austin effort to head off a move to New York

By Chuck Lindell
Sunday, June 15, 2003

WASHINGTON -- Shortly before kickoff at last fall's Texas-Oklahoma college football game, U.S. Sen. Kay Bailey Hutchison met on the Texas State Fairgrounds with a small but earnest group intent on keeping International Sematech, the chip industry research consortium, based in Austin.

The senator gave them 15 minutes. So, standing in a corner after the pre-game brunch, trying to outshout hyperactive football fans, the Sematech supporters made their pitch.

They said the U.S. military and intelligence agencies rely on microchips increasingly supplied from overseas, creating a national security vulnerability that could be solved if the U.S. owned or managed a microchip foundry: a research and manufacturing center.

Sematech would be a natural partner if such a foundry were in Austin, giving the research group another reason to ignore relocation offers from New York, and giving Austin's economy a badly needed boost. Two birds, one stone.

"It would keep us a viable player in the international scene . . . versus being statically frozen and not able to compete," said Pike Powers, an Austin business leader who was part of the state fair meeting.

Powers has been leading the effort to keep Sematech from moving to Albany, N.Y., where state leaders have offered hefty incentives. And there are indications that the Austin group's effort could pay off.

Sematech is the leading research consortium for the worldwide chip industry, and its decision to make Austin its headquarters in 1988 helped launch the city as a global power in the semiconductor industry.

The foundry idea originated with Sematech but was quickly co-opted by Austin business leaders, who set up the Hutchison meeting that also was attended by University of Texas President Larry Faulkner, former UT Chancellor Bill Cunningham and representatives of Sematech and the Greater Austin Chamber of Commerce.

Hutchison came aboard quickly.

"I very much want to do everything we can to strengthen Sematech, and I think this (foundry) is capable of doing that," the Texas Republican said recently. "And with a national foundry, we would have control over security-sensitive and intelligence-gathering information chips that otherwise might be made overseas."

Using her seat on the Appropriations Committee, Hutchison inserted three sentences into the 2003 defense appropriations bill that directed the Department of Defense to study the need for a national chip foundry.

"It is for DoD to decide, but I think it's a given that you would want a foundry in a place where you can have the best forward-thinking research, and the fact that Sematech thought of this as an issue shows that they are thinking ahead," Hutchison said.

The exchange shows the lengths to which members of Congress, Texas government, UT and Austin's power structure would travel to charm Sematech, which has 10 member companies. Sematech conducts advanced manufacturing research and sets the research agenda for the global chip industry.

The affair also highlights the business savvy of Sematech, which shocked Texas with last year's decision to establish a research program in Albany, N.Y., lured by the promise of $160 million in state support over five years. With New York angling for more, Texas Gov. Rick Perry promised $200 million over five years to help Sematech build an advanced research center, which also would be used by Texas universities, and the Legislature recently provided the first $40 million.

Losing Sematech would cost more than its 500 Austin jobs; it would be a blow to the region's standing as a cutting-edge semiconductor research and manufacturing center. Sematech's presence in Austin helped attract other chip companies and design and research talent, elevating Central Texas from purely a manufacturing center to a research and design power.

The state money and efforts to land a national chip foundry -- not to mention a February letter of support signed by all 34 Texans in Congress -- are all part of a wider attempt to, as one participant put it, "show Sematech the love."

The work appears to have paid off. When Sematech's board of directors meets in August, "we have every reason to think the board will sustain our long-term presence here in the Austin area," spokesman Dan McGowan said.

Of all the efforts on Sematech's behalf, the national foundry is the least likely to bear fruit -- a long shot that may do more to "show love" than bring tangible results.

Nobody expected a Pentagon decision before August, said Powers, an Austin lawyer and head of the Texas Technology Initiative, created to improve the state's high-tech economy. "The foundry, we always believed, would have a longer lead time. It's more difficult to bring together at the federal level," he said.

But with much microchip research and development taking place in foundries -- and many foundries moving or opening overseas -- Hutchison and fellow Texas GOP Sen. John Cornyn think a national plant could answer a compelling national security need. Cornyn has also made the foundry a priority for his office's State Projects Team, which advances state issues.

The Defense Department, already taking a wide-ranging look at the agency's electronics needs, "did not undertake a new study in response to the (bill) language," a Pentagon official said.

That's fine, Hutchison said. "If I'm satisfied that they are going to address the concern for national security on chips, then I will work within that framework," she said.

However, the senator said conversations with Pentagon officials leave her unsure that a national foundry is in America's future.

"What I'm hearing is they're looking to certify certain semiconductor manufacturers for national security purposes, then do licensing (agreements)," Hutchison said. "They're concerned about a foundry not having enough business and becoming very expensive, but the main thing is, they've acknowledged that there could be a security problem and are taking steps to address that."

According to participants in the discussion, the Pentagon has several options to consider, including a public-private partnership with an existing corporation or the creation of a government-owned entity. Owning or managing such a facility would be an unprecedented role for the governnent.

One thing is certain: Sematech's role would not change.

"I don't think anyone is discussing that Sematech is going to be a national foundry. Sematech is a research and development consortium, and we're not a world-class, leading-edge manufacturing company," said Chris Daverse, manager of external affairs for the consortium.

"If a foundry were located in Central Texas, or near Central Texas, I think there's a good chance we would look to have some sort of partnership with a foundry," Daverse said.

People familiar with the project say one possibility under consideration would be converting one of Motorola Inc.'s empty chip plants in East Austin for the project.

The Pentagon has promised Hutchison an early look at its decision.

In the meantime, Sematech remains a priority for the Texas congressional delegation.

U.S. Rep. John Carter, R-Round Rock, is scheduling a July meeting in Washington to put Sematech officials in the same room with Texans in Congress. And the offices of U.S. Reps. Lloyd Doggett, D-Austin; Lamar Smith, R-San Antonio; Chet Edwards, D-Waco; and Carter are working on the foundry idea and the possibility of federal money to aid Sematech's research.

"We're looking to find out what the needs of Sematech will be," Carter said. "When I sat down with (Sematech officials), they were noncommittal about a move. One of them grinned and said, `Don't get me wrong, our employees love Austin.'

"It's a business decision, when it comes down to it, but I think we are willing to put a pot of money together to assist them."