Microchips are big time, again.
The tiny integrated circuits that provide the brains for our smartphones, laptops, cars and refrigerators are suddenly in short supply. That’s idling auto factories, preventing schoolkids from getting computers to study at home, and potentially driving up prices for every kind of electronic gadget.
It’s also refocused political attention on the fact that three-quarters of semiconductors come from Asia, while the American share of the industry has fallen to just 12% of global chip manufacturing, according to industry data.
That has politicians wringing their hands and CEOs holding out their palms, asking for tax breaks and other incentives to revive domestic semiconductor production.
Anticipating that windfall, chip manufacturers are positioning themselves to build new factories – the industry calls them fabs – in various places across the U.S. There could be a half-dozen built over the next few years, at a price tag of $10 billion apiece or more.
Yet none of the new fabs on the drawing board are in Oregon or southwest Washington, even though the region has arguably the densest concentration of chip manufacturers and suppliers in the nation.
Oregon’s chip sector is among the region’s most economically vital industries, but it hasn’t grown in two decades. With the significant exception of Intel, no company has built a fab in the Portland area since 1998, when Komatsu Silicon America completed a Hillsboro facility that it never opened.
The region’s chip drought coincides with a decline in manufacturing across the country. That’s not new. Factories from all sectors headed overseas in the ‘80s and ‘90s in pursuit of low-paid workers.
What’s notable now is that as companies move to revive the American chip industry, they are poised to overlook the Portland area. Intel, Taiwan Semiconductor Manufacturing Co. and Samsung all appear eager to cash in on new federal incentives and build U.S. fabs, but they all appear to be looking to the American South and Southwest instead of the Northwest.
Business Oregon, the state’s economic development agency, says it has active leads in the chip industry but indicated nothing is imminent.
“We see interest in our networks, our workforce, our cluster of firms, we have huge advantages there. But also the lack of large swathes of industrial land does pose challenges,” said Nathan Buehler, agency spokesman, in an email. “The big players are looking for sites that are 1,000 to 1,500 acres for a new project.”
Outsized influence
A little more than 30,000 people work for Oregon semiconductor manufacturers, according to state data, nearly all of them in Portland’s suburbs. That’s a tiny share of the more than 2 million people working in Oregon statewide, but the chip industry has an outsized influence.
Led by Intel, the manufacturers spend billions of dollars a year just equipping their fabs, and a constellation of companies supply and maintain the factories. Intel said 3,000 contractors have worked on the ongoing, $3 billion expansion of its D1X research factory in Hillsboro over the past two years.
Moreover, semiconductor manufacturers pay an average wage of more than $150,000 a year, 2.5 times the average across all industries.
And while the chip industry’s headcount hasn’t been growing, its output has. In 2020, Oregon electronics manufacturers exported nearly $11 billion worth of products, up 24% from the prior year. That reflects growing automation and, more importantly, rising prices for these products.
Per capita, Oregon is the nation’s largest electronics exporter – by far. It exports twice as much, in dollar terms, as Texas does. Semiconductors represented the lion’s share of that as electronics grew to nearly half of all Oregon exports in the first quarter of 2021.
Intel is Oregon’s largest corporate employer, with close to 21,000 people working at its Washington County campuses. Its workforce has grown steadily over the past few decades, adding 400 employees already this year.
Though based in Silicon Valley, Intel’s largest and most advanced operations are in Washington County. That’s where Intel develops each new generation of microprocessor, exporting a manufacturing process developed in Hillsboro to high-volume fabs in Arizona, Israel and Ireland.
Intel plans to wrap up its D1X expansion early next year, and on Wednesday new CEO Pat Gelsinger said he anticipates Intel will expand its Oregon manufacturing capacity again after a few years. That means millions of dollars in new investment and hundreds, or thousands, of new jobs.
While Intel has steadily expanded, though, the state’s chip industry has plateaued overall. The sector employs roughly the same number of Oregonians as it did in 2002.
Stagnation
The stagnation in Oregon’s chip industry parallels a similar phenomenon nationwide. Few companies have built new fabs anywhere in the country over the past two decades, while construction has soared overseas – particularly in Asia.
That’s partly a result of semiconductor manufacturing following the electronics supply chain, which began shifting overseas in the 1980s to capitalize on low labor costs.
Unlike most manufacturing, labor is a small component of the cost of making computer chips. The manufacturing tools represent the major expense. The semiconductor industry has benefitted by being closer to other companies that will make the final products that use its chips.
Domestic manufacturers, though, argue that the main reason the chip industry has shifted overseas is that Asian countries heartily subsidize their manufacturers.
“The industry estimates would be that the Asian companies are seeing on the order of 40% (of construction costs) in forms of subsidies, tax incentives, etc. I need to be competitive,” Gelsinger told The Oregonian/OregonLive last week, while he was visiting Intel’s Hillsboro factories. Gelsinger said he needs something “in that range” as Intel expands to contract manufacturing, competing with rivals overseas.
At a period of rancorous partisanship in American politics, there is bipartisan enthusiasm for getting more federal money to the semiconductor industry. The Biden administration has picked up right where the Trump administration left off in supporting $50 billion in support for domestic manufacturers.
Both of Oregon’s U.S. senators back those efforts, and Oregon Gov. Kate Brown’s office said she told Gelsinger on Wednesday that she will work to enlist Oregon’s congressional delegation to push the package forward.
It seems inevitable that the chip industry will get that $50 billion, and it has a good shot at winning support for tax credits on the money it spends to equip its U.S. factories. That could be worth billions of dollars more and might indeed spur construction of new U.S. fabs.
It’s far from clear that building boom will extend to Oregon, though.
Bypassing the Silicon Forest
The Northwest has abundant water, relatively cheap electricity and a labor pool that includes both highly educated engineers and skilled fab technicians. Those are all essential ingredients for making high volumes of semiconductors.
Oregon and Washington also have tax structures highly conducive to capital-intensive manufacturing. Oregon’s is especially favorable, given the absence of a state sales tax and property tax breaks for heavy industry. Local tax exemptions have saved Intel alone more than $1.2 billion in the past decade.
What the Portland area may not have, though, is the land the chip industry seeks.
The region’s urban growth boundary limits residential and industrial development in areas on the periphery of Oregon’s suburbs. It’s a policy that “adds to the exceptional livability that we all love,” according to Amy Jauron, vice president of business development for the regional business organization Greater Portland Inc.
But the growth boundary also makes it difficult for developers to quickly offer up a big parcel of land when the opportunity arrives.
“With that is an inherent challenge when it comes to industrial land development, making sure we have enough,” Jauron said. She said the solution is to work collaboratively among communities to anticipate opportunities and have the appropriate land available.
Taiwan Semiconductor Manufacturing Co. is the world’s largest most sophisticated chip manufacturer, but its fabs are concentrated on the island of Taiwan. Geologically unstable – and geopolitically sensitive – that’s long been seen as a potential risk to the chip industry and even the global economy.
In the 1990s, TSMC built a single U.S. factory called WaferTech in Camas, just across the Columbia River from Troutdale. Built on 260 acres, TSMC originally floated the possibility of building several more factories on the site. That never happened.
When TSMC agreed last year to build another U.S. factory last year, at the urging of the Trump administration, Washington state bid for the project. The Taiwanese company opted not to expand on its vacant land in the Northwest, deciding instead to build at a new site near Phoenix.
Reuters reported this past week that TSMC may build several more Arizona fabs, establishing a major U.S. factory network in the Southwest. Arizona has a cluster of chip manufacturers, much like Oregon, anchored by Intel.
It also has a lot of land. TSMC bought a site of more than 1,100 acres in Arizona.
Huge parcels like that are rare in the Portland area. Even smaller parcels that could accommodate a single large fab are in short supply.
“If we don’t have the sites and the infrastructure to accommodate them, we very quickly can be out of consideration,” said Dan Dias, economic and community development director for the city of Hillsboro. “We do have sites, but they are growing increasingly scarce, almost by the quarter.”
Data centers, Amazon warehouses and other large operations have gobbled up much of the region’s big industrial parcels – sometimes with the encouragement of local tax breaks. Data centers typically employ only a handful of people while Amazon’s median wage is $29,000 a year, less than a fifth of what the chip industry pays.
So Dias said Hillsboro is working to cobble together adjacent land or open up new areas for development on the city’s fringes, potentially identifying developable sites with dozens, hundreds, or perhaps even 1,000 acres or more that could accommodate a large manufacturing campus.
Even if Oregon doesn’t capture a share of the current building boom, Dias said Hillsboro will be attractive in the future.
“We are a very patient and long-term stakeholder,” he said. “The semiconductor cluster has been a very strong industry for our community for quite some time.”
