Not so fab anymore

Motorola, AMD struggle to find takers for vacant chip fabrication factories

By Kirk Ladendorf
Friday, July 25, 2003

Motorola Inc. remains optimistic that it still can do a deal with the University of Texas to sell half of its manufacturing site on Ed Bluestein Boulevard in East Austin.

The chip maker has 1 million square feet of office and industrial space on 100 acres on the south half of the site that it no longer needs.

UT initially said it wanted the space to expand classrooms and faculty offices, but President Larry Faulkner said last week that it can't afford the upkeep, which he estimated at about $9 million a year. The university is facing a budget gap of $80 million during the next two years.

Yet Motorola still holds out hope.

"When (UT's) budget situation is improved, I believe there is an opportunity to continue the conversation," Motorola spokesman Jeff Hahn said.

It has to. The chip maker has shown the property to a handful of other potential buyers this year, but Hahn said it isn't involved in active negotiations.

That's the problem with chip manufacturing plants: Unlike office buildings or warehouses, they can't be converted easily to other uses.

For now, Motorola uses one of its shuttered factories in East Austin as a storage area. Advanced Micro Devices Inc. uses a vacant factory in Southeast Austin as a test area for silicon wafers that are processed at the nearby Fab 25 factory that makes flash-memory chips for use in cell phones and other products.

"Old chip factories are albatrosses because there aren't many alternative uses for them," said industry consultant George Burns with Strategic Marketing Associates in Santa Cruz, Calif.

"What else are you going to do with them? Maybe some sort of research or biotech development. That (lack of alternative uses) is the problem."

The question of what to do with obsolete factories is a continuing one for the industry because the effective life span of a factory might be only 15 to 25 years.

Across North America, 34 chip factories have been closed since the start of 2001, while 262 chip factories remain in operation in North America, Burns estimates.

Austin is awash in vacant chip fabrication plants, often called "fabs," now that the chip industry has hit another of its periodic downturns, leaving companies scrambling to scale back capacity to adapt to lower demand.

Motorola has three vacant plants, all of which closed since the slump began in late 2000. AMD also has a trio of idle fabs, two of which were shuttered last year.

In San Antonio, Sony Corp. and Philips Semiconductor have announced plans to close their chip factories this year. Sony plans to close its 600-employee factory, which it bought from AMD in 1990, by September.

Drop in jobs, tax values

The idled chip plants also are a painful reminder of the toll exacted on Central Texas by the decline in high tech.

The Texas Workforce Commission estimates that Austin had 16,700 chip-related jobs in June, down almost 32 percent from three years ago.

When AMD closed the Fab 14 and Fab 15 factories last year, the company eliminated about 1,000 local jobs. And Motorola has cut more than 2,000 Austin-area jobs during the past two years, most of them related to manufacturing.

But it's not just jobs that have declined. So have tax values.

The Travis Central Appraisal District reported that the appraised value of Motorola's Ed Bluestein campus is $194.5 million, down two-thirds from three years ago.

At AMD's campus on East Ben White Boulevard, the taxable value has dropped by 35 percent to $95 million during the same period.

The decline of the tax base from the chip industry puts pressure on Austin's other taxpayers to pick up the slack precisely at a time when they're also strapped.

"When they are operating, semiconductor facilities are great for increasing your tax base," economic development consultant Angelos Angelou said, "but semiconductor plants that have been vacated have no more value than a warehouse, or less. The closing of semiconductor plants has a tremendous impact in Austin, not just for one year but for many years to come."

Trend in the industry

The quiet that is spreading across the once-bustling Motorola campus on Ed Bluestein is part of a broader shift in the semiconductor business.

Motorola has put several factory sites up for sale worldwide. The company also has said that it would like to find a partner for its chip factory in Tianjin, China.

Motorola has said it plans to pursue an "asset-light" manufacturing plan, where many of the chips it sells are manufactured by other companies, including Taiwan Semiconductor Manufacturing Co.

Motorola's slow progress in selling off the Ed Bluestein property is not uncommon for plant sites that include obsolete chip factories.

Chip plants are heavily engineered, specialized plants that aren't well suited for many alternative uses, experts say. Occasionally, an obsolete chip factory is bought by another chip maker that intends to use the plant to make chips that require less than cutting-edge manufacturing technology.

Chip factories potentially can be used for laboratory and research space. But many obsolete chip plants sit empty or are only lightly used.

What happens to the Motorola site ripples beyond the East Austin campus and UT.

UT's decision to forego a purchase of the Motorola site complicates the effort being made by backers of International Sematech, the chip industry research consortium that is headquartered in Austin.

Supporters, seeking to keep Sematech here instead of seeing it move to Albany, N.Y., are trying to get federal money for a specialized chip factory that would make military chips. Motorola's MOS 8 factory is considered a good location for such a plant if the project is backed by the Defense Department.

And if such a plant were set up, Sematech would be able to use part of the factory for its research work, helping its research effort in Austin.

Austin lawyer Pike Powers, who leads the group trying to keep Sematech here, has asked for help from the Texas congressional delegation to seek federal money for such a project.

Having UT as an owner of the MOS 8 property could make it easier to secure federal money for a specialized chip factory, Powers said.

"We are reassessing those concepts that are still viable and still kicking," he said. "All the chapters of this book haven't been read yet."; 445-3622