November 08, 2006

New York Bets On High-Tech To Aid Upstate

By: by New York Times


EAST FISHKILL, N.Y. — New video game consoles from Sony and Nintendo will soon join Microsoft’s year-old Xbox 360 on store shelves. Most of the microprocessor chips that animate the three machines are being made not in Asia but in a factory here, surrounded by woods, 70 miles north of Midtown Manhattan.

Inside, the factory is filled with hundreds of chip-making tools that are fed by plastic pods, riding on overhead tracks and carrying pristine silicon wafers, in an elaborate symphony of production.

Engineers and operators, wearing head-to-toe nylon suits and surgical gloves, monitor the machines from laptop computers, constantly tweaking the system to generate faster output with fewer defects.

This sprawling I.B.M. factory offers a glimpse of the kind of manufacturing in which the United States still excels: the automated production of advanced technology, requiring highly skilled workers — but not a lot of them.

The modern factory is also an important part of an ambitious business-and-government effort to create a thriving industrial cluster in upstate New York, based on microelectronics and nanotechnology, the science of manipulating materials at the molecular and atomic level.

The other pillar of the plan is the Albany NanoTech complex, a research and development center at the State University of New York at Albany, nearly 100 miles north of East Fishkill.

State and local governments are betting big on this high-tech vision, with grants, tax breaks and other subsidies of more than $1 billion, mainly in the last five years. More government backing has been pledged. That bet may already be paying off. There are recent signs, from big-company investments to the birth of small start-ups, to suggest that the technology cluster is gaining momentum.

But nurturing high-technology hubs, development experts say, is tricky, and simply making big investments in factories and labs is no guarantee of success.

The real goal, they add, is to build gradually a network of people and companies with technical, design, financial and entrepreneurial expertise — one that pursues a whole range of high-tech opportunities instead of being dependent on a particular product, factory or industry niche.

Silicon Valley, they note, no longer relies on silicon factories for its prosperity. Product design, software, services and financing account for most of the 490,000 high-tech jobs in Silicon Valley.

“Manufacturing alone is not where competitive advantage lies in the long run,” said AnnaLee Saxenian, dean of the School of Information at the University of California, Berkeley, and author of “The New Argonauts: Regional Advantage in a Global Economy.”

“The key for upstate New York, or any other region, is the ability to build the set of social and institutional relationships that encourage innovation.”

As a cautionary example, Ms. Saxenian points to the once-promising effort to develop a high-tech cluster around Intel’s big chip plant outside Portland, Ore., which seems to have stalled in the last few years.

In upstate New York, as in the nation, pockets of growth are not going to reverse the long-term decline in manufacturing jobs.

The United States remains the world’s top manufacturer in terms of the value of goods produced. But the gains, especially in high-tech products, have come from more efficiency. From 1990 to 2005, the number of manufacturing jobs in New York State fell by 41 percent, to 580,000.

“This upstate cluster — no matter how successful — is not going to create a lot of manufacturing jobs, and it is not going to be an answer for the problem we have in upstate New York of the shrinking job base in traditional blue-collar manufacturing,” said Richard Deitz, a senior economist at the Federal Reserve Bank of New York’s Buffalo branch.

Still, the early progress in upstate New York is encouraging. In the last year alone, employment at the Albany NanoTech complex has doubled to nearly 1,400. The nanotechnology center, a modern building sheathed in bluish mirror-glass and metal, now covers 450,000 square feet, and construction of a 250,000-square-foot building nearby is scheduled to begin later this year.

More than 100 companies have engineers working at the industry-and-university research center. The roster includes big chip makers, like I.B.M. and Advanced Micro Devices, as well as two leading foreign makers of semiconductor equipment, Tokyo Electron of Japan and ASML of the Netherlands, which also have set up research operations at the Albany complex.

The evolving cluster helped sway Advanced Micro Devices when it chose to build a $3.2 billion computer chip factory in Saratoga County, north of Albany. The company made the decision this year, after weighing competing bids from other states and from Asian nations.

“Being close to strategic partners, like I.B.M., and to the research and knowledge base that is building up around Albany was incredibly important,” said Susan Snyder, vice president for government relations at Advanced Micro Devices.

Most of the investment has been by big companies so far. But the Albany complex has also helped or given birth to small technology companies and start-ups nearby, like Starfire Systems, Applied NanoWorks and Evident Technologies.

“This is beyond pump-priming now,” said Alain Kaloyeros, a physicist who is the chief administrative officer of the College of Nanoscale Science and Engineering at SUNY-Albany.

Mr. Kaloyeros sees the combination of the research center along with the corporate investment in Albany and East Fishkill as the beginning of “a huge knowledge-generating machine,” which should attract more investment, skilled workers, scientists and students.

That is certainly the hope, and expectation, of state government leaders who have heavily subsidized the plan. The subsidies are intended to be a cooperative investment with industry, rather than a giveaway, according to state officials.

One standard, state officials say, is that corporate investment should exceed government support by a ratio of at least three to one. “It should be driven mainly by the private sector,” said Jeffrey Lovell, senior policy adviser to Gov. George E. Pataki.

The Albany nanotechnology complex passes that test. About $3 billion has been invested in the complex so far, mainly for costly tools and equipment needed for research and development. The private spending has totaled $2.5 billion, while the state has invested $500 million in its push to add high technology as an engine of the state capital’s economy, which relies largely on government and related services.

The state’s bid for the planned Advanced Micro Devices factory shows the rationale for government support for high-technology ventures. The state has agreed to provide the company with $900 million in grants and tax credits. A.M.D. is expected to employ about 1,200 people at the factory, which works out to a hefty $750,000 of state subsidy for each job created.

But state officials argue that the factory will create 3,600 full-time jobs when services and support for the factory are included. And thousands more construction workers will work on the project.

The overall impact will be to add $2 billion to the region’s economy over 10 years, mostly in wages, from the employment linked to the factory, estimates John M. Bacheller, executive vice president of the Empire State Development Corporation.

In East Fishkill, the state and local governments pledged tax breaks, grants and incentives of $660 million to ensure that I.B.M. built its factory, which opened in 2002, in the region. I.B.M. had alternatives, but it was inclined to locate in its traditional manufacturing territory and not far from its research labs in Yorktown Heights, as long as the state helped out.

The new $3 billion factory came after a long period of contraction by I.B.M. in the lower Hudson Valley, where the company had employed more than 30,000 in the 1980s. That was the heyday of the mainframe, an era of computing that I.B.M. dominated. In Dutchess County, home to the company’s big operations in Poughkeepsie and Fishkill, entire neighborhoods were made up of I.B.M. families.

But when I.B.M.’s fortunes plummeted in the early 1990s, production lines were shut and the company’s employment in the region fell to less than 14,000. In Dutchess County, unemployment nearly tripled to 11 percent.

The East Fishkill factory — built on a site where I.B.M. closed a chip production line in 1993 — has helped stabilize the region’s economy by attracting other private investment and skilled workers. The county’s unemployment rate is down to 4 percent and house prices are rising.

A couple of years ago, there was a lot of open space on the factory’s production floor. But now it is packed full of silicon-processing machines, each self-enclosed and airtight, about 500 and counting. More are being installed in an adjacent annex building.

Output at the East Fishkill factory has more than doubled in the last three years, and 80 percent of the production is for outside customers like the video game makers. I.B.M. makes microprocessors for its own big computers, but that work does not fill the new operation. To be profitable, it relies on doing tailored design and manufacturing in collaboration with industry partners like Sony.

The microprocessors made for Sony, Nintendo and Microsoft are shipped to Asia, where contract assemblers, mostly in China, put together the video game consoles. Many of those consoles end up on the American market.

The I.B.M. factory runs 24 hours a day, seven days a week, employing more than 2,000 people, including maintenance and administrative workers. The few hundred people on the factory floor at any one time often have skills seemingly more suited to a research lab than a production line. Ph.D.’s are thick on the floor, and even machine operators with two-year degrees from technical schools must constantly upgrade their skills.

Joseph Lawson, a senior operator, recalled the days, more than two decades ago, when he dipped silicon wafers into chemicals by hand. “Now it’s all automated,” he said. “The tools are amazing, and the training never stops.”

In addition, 250 engineers and managers from partner companies work at the I.B.M. factory. They have come from Japan, Germany, Singapore and elsewhere.

Takayuki Kurihara, a 32-year-old software engineer for Tokyo Electron, moved to Fishkill in 2002. He beat out 10 other candidates for the job. “What I.B.M. is doing here is very high-tech, and this factory is in the spotlight in my industry in Japan,” Mr. Kurihara said. “Many people want to come here.”

Local officials are trying to lure more companies.

The appeal, said Anne N. Conroy, president of the Dutchess County Economic Development Corporation, is being surrounded by a growing pool of skilled people and industry partners.

“It’s the cluster that attracts them,” she said.