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High Tech Site Selection: Electronics Leverages the Digital Revolution

Demand for consumer electronics is driving semiconductor fabricators to locate in the United States.

Oct/Nov 06
It's not your grandfather's electronics industry anymore.

In the days of an emerging digital revolution, consumer electronics are taking on new shapes, new sizes - and plenty of new capabilities. Apple's iPod, Motorola's Razr mobile phone, and the possibilities of Internet telephony have changed the face of the electronics industry, and analysts say this is just the beginning.

Market researchers are forecasting some telling industry trends. They speak of exponential growth in areas that span traditional PCs to wireless communications to various forms of digital entertainment devices. The common denominator in all of the electronics trends is semiconductors, or chips. Semiconductors are materials, such as silicon, that sit between conductors (like copper) and insulators (like plastic). It is the basis of modern microprocessors that process information.

Market researcher In-Stat predicts that worldwide semiconductor sales in the consumer electronics category will reach $45.6 billion in 2010. Many of the most productive semiconductor plants are already based in America, and new plants are coming online from coast to coast to prove that the United States has plenty of strategic advantages to offer the electronics industry.

"Ten years ago, the location decisions were based on cheap labor," says Len Jelinek, director and senior semiconductor analyst at market research firm iSuppli. "The industry has transitioned, and labor is no longer the end-all answer because the machinery is so expensive, but automation has reduce the number of necessary workers. Communities are offering large incentives to get these high-paying jobs, so more electronics manufacturing is migrating back to North America."

Examining the Trends
With North America making up a large percentage of electronics industry consumption, locating here offers manufacturers closer proximity to key markets. And with the digital revolution offering scads of new devices, the possibilities are profitable. In order to get a clear picture of today's electronics industry expansion decisions, one has to look to the trends of tomorrow. Analog televisions, VCRs, and fax machines are expected to fall by the wayside in favor of digital televisions, DVD players, and multifunction peripherals.

The Internet is sparking some of the upcoming consumer electronics trends. Voice over Internet Protocol (VoIP), a technology for transmitting ordinary phone calls over the Internet using packet-linked routes, is leading manufacturers to develop new hardware. Wireless VoIP phones will jump 76 percent to become a $102.5 million total available market this year, according to InfoNetics, an international market research and consulting firm.

Similarly, In-Stat has called IP Television (IPTV), a system where television and video is distributed to subscribers over the Internet using a broadband connection, as the wave of the future. In-Stat forecasts nearly 17 million IPTV set-top box units will be in use in the world in 2009, compared with 1.7 million units in 2004. That growth is four times faster than traditional cable or set-top boxes.

The blockbuster growth of the iPod brand MP3 player has been well-documented, and so has its growth. The overall market for Apple and its competitors will jump from 140 million units in 2005 to 286 million units by 2010, In-Stat reports. With Microsoft's recent introduction of its own player, the Zune, that number could be even higher.

Speaking of Microsoft, the Redmond, Washington-based software giant, along with Intel and several electronics vendors, are introducing hand-held consumer electronics devices that attempt to offer consumer and communications functions combined with a full-function PC. Based on a traditional personal computer (PC) platform, the ultramobile PC (UMPC) market could see as many as 7.8 million units by 2011, In-Stat reports. And a increasingly versatile PC market is expected to grow to a 282 million-unit category by 2009.

With those emerging trends in mind, In-Stat projects the three fastest-growing consumer electronic devices through 2009 to be portable digital audio players, LCD televisions, and DVD recorders.

"Consumer products are so ubiquitous, so ingrained into the lives of nearly everyone in the world," says Allen Tan, technical director at Arrow Electronics, a Melville, New York-based provider of products and services to electronics components companies. "And the improvements to the products - such as smaller and more powerful MP3s, higher-resolution flat-screen televisions, multifunction mobile phones, and personal digital organizers - keep coming at such a fast pace."

Pacific Northwest Packs Semiconductor Punch
California, Texas, Oregon, and Arizona led the nation in semiconductor manufacturing in 2004, according to AeA's most recent Cyberstates report. But there are other regions emerging as players in this growing industry that provides the intelligence to electronics products.

Vancouver, Washington, is vying to bolster its cluster of electronics manufacturers with a proposal to build a new semiconductor and microdevice research and development laboratory there. The plan, known as the Semiconductor Industry Reinvestment Initiative, is designed to sustain job growth and accelerate future economic development of southwestern Washington. Semiconductor companies such as nLight Photonics and Sharp Laboratories call the region home.

Oregon is known far and wide as a high-tech state. Venture capital investments are soaring and the state is pushing for electronics industry breakthroughs with its semiconductor lab at the University of Oregon, with sponsors including Intel and Filmetrics. Oregon is home to a $2 billion Intel chip plant, and Korean giant Hyundai Semiconductor America is expanding its $1.2 billion plant there.

South Bolsters Electronics Manufacturing
Semiconductors and Austin seem to go hand in hand, with investments from industry titans like Motorola, Advanced Micro Devices (AMD), and, most recently, Samsung. The Asian electronics behemoth in January announced Austin as its choice for a $5 billion chip manufacturing plant. Austin is also home to two national research consortia, MCC and SEMATECH. More than 100 semiconductor makers have clustered in Austin.

Arizona is another Southern semiconductor industry hub, with Intel, Motorola, Texas Instruments, Freescale, Microchip Technology, and ON Semiconductor residing there. Intel upped the state's semiconductor ante when it announced it would build a $3 billion new facility - or "fab" - in Chandler. Fab 2 will begin production of microprocessors in the second half of 2007. The structure will be about 1 million square feet with 184,000 square feet of clean room space. The project will create up to 1,000 new Intel jobs at the Arizona site over the next several years.

"One reason you don't see fabs in emerging markets is because fabs are capital intensive. They demand reliable power and water and a variety of chemicals," says Jim McGregor, principal analyst with In-Stat. "In Chandler, Intel and Microchip actually have lines running to companies that supply chemicals. It's also difficult to ensure clean water and reliable power in developing countries - and you need highly skilled labor."

North Carolina's information technology infrastructure includes a growing emphasis on semiconductors. A significant portion of the state's semiconductor output goes into telecommunication equipment manufacturing. Analysts credit the Research Triangle Park, which hosts companies like RF Micro Devices, a player in the booming market for wireless technologies, and Flextronics International, an R&D services provider for semiconductor fabricators.
Electronics Growth from East to West
Back East, Virginia is an entrenched electronics manufacturing center. Nearly 11,000 technology firms employ more than 265,000 there. Virginia is home to two major fabrication plants and more than 70 local semiconductor suppliers and vendors, including Micro Technology, Infineon Technologies, Applied Materials, and ITT Microelectronics.

Northeast Oho has a sizeable and thriving electronics cluster. The state is looking to growth areas such as micro electrical mechanical systems (MEMS), devices that use microfabrication methods to develop moving parts liked to electrical components, sensors, and RFID, all of which depend on strong electronics research.

Of course, California is still the granddaddy of electronics manufacturing, buoyed by its pool of qualified labor and existing manufacturing clusters. The state is home to prominent and growing electronics companies such as Apple, Hewlett-Packard, Intel, and Qualcomm. San Diego leads in consumer electronics manufacturing, according to AeA, while San Jose dominates California's vital semiconductor manufacturing industry, followed by San Francisco-Oakland.

With so much anticipated growth, analysts predict more fab expansions and locations in North America. While the electronics manufacturing industry may have special requirements for infrastructure and labor, the location decisions, as with any industry, boil down to those factors, along with a low cost of doing business and a high quality of life. Incentives may be the deciding factor among the leading electronics manufacturing region as new plants go online.

"There's been a lot of uproar over the incentives given to these companies, but the electronics industry didn't start it. The municipalities did. You can't blame semiconductor businesses for taking advantage of something that's already there," says McGregor. "On the other side, building a fab is probably the best solid foundation for business because once it's running companies will rarely shut it down. It's one of the best long-term investments for employment and taxes."

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