Economic Development in a Flash
How Micron and Intel’s Joint Venture Became Utah’s Largest Business Investment
Utah scored big in 1994 when it landed Micron Technology Inc.’s globally sought-after semiconductor fabrication plant. But, within a year’s time, the expected watershed of high-paying jobs and economic benefits would be derailed due to unforeseen market changes, leaving a giant facility sitting mostly empty in the small town of Lehi, UT for nearly a decade and a lot of dashed hopes.
While Micron used the facility to some degree over the years after the market forced the company to pull back, the mammoth plant was never utilized to its full capabilities.
“There was some concern that the building would ever be able to reach its full potential,” says Jamie Davidson, a Lehi resident at the time who now serves as the city administrator. “And for the residents and the community [there was concern because] a lot of the local economic market was predicated on the success of Micron.”
So, in January 2006, when Micron and Intel announced they were joining forces to form IM Flash Technologies to produce NAND flash memory products for iPods, digital cameras, and other consumer products, Lehi and the state jumped at the opportunity to bring IM Flash to the city.
IM Flash was born out of Intel’s desire to manufacture NAND, which had become the fastest-growing segment of the semiconductor market. Intel had the capital. Micron had the technology. The two combined would have the power to become a global player in the market, and they sought to establish a presence as quickly as possible, says Dave Baglee, co-chief executive officer at IM Flash with Rod Morgan.
State officials in Utah wanted to spare no effort to win the project, so they began a collaborative effort with the county, city, and school district officials to reach an agreement that would hopefully lead to IM Flash moving into the old Micron facility and providing the high-paying jobs and economic stimulus associated with a semiconductor fab playing in the global marketplace.
Jason Perry, executive director of the Governor’s Office of Economic Development (GOED), says IM Flash was exactly the type of business the state was seeking to recruit, having established economic development cluster zones that, in part, targeted software and information technology companies. State officials were eager to meet with the executives of the new joint venture and make the case for locating in Lehi. The state enlisted the help of the private/public recruiting firm Economic Development Corporation of Utah, which helped to provide data on everything from workforce issues to costs of doing business, such as power and utilities. With those factors known, and with the projection that IM Flash would produce as much as $121.5 million in increased tax collections for Utah over 10 years, the state worked hard to arrive at an incentive package that would work for the various levels of government and the company.
“We have a very good incentive system in the state of Utah,” Perry says. “In fact, I’d say because of great changes from our legislature, we can compete with anyone in the world for incentives for businesses.”
And compete Utah did, as the IM Flash project attracted much global interest. In the end, however, locating in Utah presented the most attractive option to the company.
According to Baglee, several of the factors that helped cinch the deal included Utah’s business-friendly environment, the existing facility in Lehi, existing infrastructure in the city to support the semiconductor business, a talented labor pool, proximity to equipment suppliers, ease of transportation for raw materials, and a great quality of life.
“I think that once people come to Utah, they realize what a great place it is to live,” says Baglee.
The IM Flash incentive package was finally approved by the GOED in March 2006. It included an Economic Development Tax Incentive Fund rebate of 30% of new state revenues on a post-performance basis over five years. In addition, a portion of the local property taxes paid by the company would be used to fund infrastructure improvements needed to accommodate the plant. City officials in Lehi had already opted to sacrifice property tax revenue in order to see Micron build its facility in 1995. The sacrificed revenue, which was used for improvements ranging from water wells and new roads to power lines and substation facilities, totaled close to $80 million, according to the original budget. The local jurisdictions renegotiated these property tax incentives 11 years later with IM Flash.
“And today it sits as about a $100 million investment and commitment on the part of [local and county governments] by way of property tax to help reimburse Micron and IM Flash for the investment that they made in the community,” Davidson says.
In exchange for all these incentives, the company committed to keeping its operations in Utah for at least 10 years, and to pay salaries that average above 200% of the county median wage. The company expected to create 1,850 jobs that pay an average of $50,000, or 224% of the county’s 2006 median wage. Over 10 years, the company is expected to pay $1.1 billion in wages to its employees.
In late 2006, IM Flash commenced what is now believed to be the fastest semiconductor ramp-up ever. It would be a $3 billion investment on the part of the parent companies. Brad Mortensen, facilities manager for the joint venture, was given instructions to assemble a construction team, including local contractors, that could have the old Micron facility up and running within 11 months. The major construction was completed in 2007, leaving the first few months of 2008 for finishing the tool installation. In the end, the factory would use 11.25 million construction hours and 225,000 cubic yards of concrete.
By April 2008, the facility was nearly at full staff, with about 1,600 jobs filled, nearly half of them in engineering. Mortensen notes that Lehi’s location allowed IM Flash to draw workers from both Salt Lake and Utah countie
s, Utah’s two largest population centers. According to Baglee, finding talented people for those jobs was made easier thanks to the engineering and science programs at the University of Utah, Utah State University, and Brigham Young University.
“They have been producing really top-notch graduates here for many years, and the lack of high-tech industry in Utah really drove people to leave the state,” Baglee says. “One of the things we found when we started up the factory, we got a lot of ex-graduates and people who were from Utah, wanting to come back to Utah. So it was just a great place to go hire.”
Baglee, in his prior 20 years with Intel, had never seen a startup turned around as quickly as IM Flash in Lehi. The aggressiveness was essential, he says, as the industry demands the quickest possible product-to-market time. In fact, he adds, “We’re doing things I never thought were possible at Intel. I believe that Micron sees the same thing. We’ve been able to draft the best of both parent companies’ knowledge here.”
With IM Flash has come numerous suppliers and other businesses that sought to locate near the facility, also boosting tax revenue for the locale and the state, while changing the face of the community and the local economy. Davidson notes that Lehi’s population alone has more than doubled in the past decade, now nearing 50,000. And while the school district has had to accommodate the additional children, the financial benefits surrounding the new facility are so widespread they are almost impossible to quantify.
“If we’re talking about just property taxes for the plant itself and operating the facility, then you’re looking at probably a million-plus dollars [in revenue], but then there are the ancillary benefits that result,” Davidson says. “Anytime you have 2,000 to 3,000 people that come into your community every day, those people are also shopping in your community, they’re living in your community, they’re recreating in your community, so everything from property taxes on their home, to sales taxes generated from their purchases also benefits the city. People stay in hotels associated with the plant as well, and we generate a percentage of that in hotel room tax, and so on and so forth. So, the reinvestment that IM Flash is making in our community, above and beyond what the city and other government jurisdictions have committed, is in the millions.”
Perry describes the locating of more than a dozen suppliers near IM Flash as part of “a multiplier effect” that comes with the semiconductor fab. These businesses, he adds, did not require tax incentives from the state. All told, Perry says, state officials are proud that the state was able to court IM Flash and see the expectations become reality.
“This is one of the greatest deals the state of Utah has been able to put together with a company,” Perry says. “And this is coming from someone who remembers going by the great facility out there before and wondering what the possibilities were there.
“If you go by there now and see the parking lots completely full, entire communities being built around this plant, the importance of this project for the state of Utah can’t be overstated … and we know [IM Flash is] going to be a very important part of our economy for a very long time.”
Q&A with IM Flash Executives
Business Facilities: What can you tell me about the decision to locate IM Flash in Utah?
Stan Lockhart, Government Affairs Manager, IM Flash Technologies: There was a very close partnership of government at all levels, and the business community was supportive of IM Flash coming as well. It was a joint effort on the part of numerous individuals.
The business-friendly environment that government creates can make a big difference. That was huge. There was just a can-do attitude on the part of the people who were involved in the project. The other thing is that infrastructure costs were very reasonable—the price of electricity, natural gas, and water … the very basics of running a business.
BF: How was the business community involved?
Lockhart: They all just weighed in to support us, many of the business associations in the state—the Utah Manufacturers Association and the Utah Information Technology Association, now called the Utah Technology Council. We also had support of groups like the Utah Taxpayer Association and some of the chambers of commerce. Really, it was just a wide-ranging group that came together to help us make our case that Utah needed a company like Micron at the time, and now IM Flash, to become an economic anchor in the state.
BF: What is taking place outside IM Flash in that locale?
Todd Matthews, Site Manager, IM Flash Technologies: We have a lot of suppliers, whether they are tool suppliers or raw materials suppliers. The facility has such a massive output that each one of them has to actually establish a support team locally in order to continue to supply the service that we need. As an example, from a tool supplier perspective, it’s in the area of around 50 suppliers. So each one of those suppliers, when they sell us a tool, that supplier has a lot of interest in making that tool run very efficiently from a cost perspective, and the reason is that they want to sell tools to other companies. … So they’re very interested in making our tools successful. In order to do that, they have to have their experts living on site here with us. We call them support representatives; basically, they sit here at the site, and as problems come up that our technicians are not able to solve, they have direct links to experts at their company to get information about how to solve that problem. So, we collaborate with them. They’re very interested in making their tools run well, and that benefits us. But, they have to have a pretty sizable team in the local area to do that.
BF: What have been the greatest accomplishments since the Intel/Micron joint venture was formed?
Matthews: From a facility perspective, [there have been some] pretty amazing accomplishments with regard to utilizing areas of the buildings for the fabrication process that were not originally designed to house fabricating processes. There was originally going to be quite a bit of empty space that was going to be used for storage and things that don’t make money for the company. We took those spaces and we put fabrication equipment in there. It was an enormous challenge to enable those spaces to house fabrication equipment, which includes construction of a clean room, drains, and utilities going to the tools. That was a significant challenge and I’d have to say a very enormous success. That’s one.
Another was that the construction schedule was very aggressive for a U.S. site. From that perspective, everything that was completed here was pretty amazing, and it was done with basically not enough resources … We were very short in the United States on specific trades during this time frame, so we had to make modifications to our plan. We had to be really dynamic and flexible to get the team focused and the trades focused on the right projects in order to still succeed and achieve our dates that we had planned for initial silicon storage and ramp. And after that, what was originally viewed as a very aggressive ramp plan for both of our parent companies, the team achieved that ramp at a faster rate than was expected. … We believe we may have actually achieved the fastest ramp in the world at this point in time. So, those were pretty significant achievements.
The last achievement: we always take the best [ideas] of both of our parent [companies] and bring them here and implement them, and both of our parent [companies] have amazing strengths that are complementary to one another. Intel has always been famous for its ability to take a process from a research and development stage to a production stage, and then also transfer that same process to another facility, … and not miss a beat in terms of not seeing a decrease in yield. There’s an enormous discipline and cost associated with that from the Intel perspective, and we were able to achieve the same goal at a very low cost. From a non-facility perspective, that was an amazing achievement.
Q&A with State of Utah Officials
Business Facilities: Can you tell me how your office approaches an economic development project such as IM Flash?
Jason Perry, Executive Director, Governor’s Office of Economic Development: There are a couple key pieces to any great recruitment deal. It starts with a company looking for a spot, and then our office engages them because we’re the ones who help provide the incentive for a business to relocate, and we help provide the logistics to help as people are scouting for a location. We connect people with all the resources and tools of the state, and then ultimately we’re engaged because we’re the one who work out the state and local incentives. Our statute requires that before we give state incentives there be local participation as part of the deal, because it really is a great opportunity for all segments of government to work together for these kinds of projects. In this case, we worked closely with Lehi city in Utah for its piece of the incentive as well as ours.
BF: Can you give some specifics about the incentive process?
Perry: It’s an interesting time to ask because we just had a change in our legislative session. We have two key funding mechanisms. One of those is our Industrial Assistance Fund, which is a cash grant or loan program. It’s always in the form of a grant because companies in the early stage of a move are not really looking for loans; they’re looking for money that helps them relocate, build new facilities, and start hiring people. We can give some money from that fund for those upfront costs of moving.
The second is the Economic Development Tax Increment Fund, which is a rebate of the corporate income, sales, and withholding tax. We can return up to 30% of that corporate income/sales/withholding for up to 20 years. The changes that just happened in our legislative session are quite progressive for our state. They’ve been converted to tax credits, so we can provide a refundable tax credit to the company for that 30% over 20 years, which is important to the companies. The refundable nature makes it so, in those beginning years, we can make sure they’re getting the right kind of dollars. For the deal itself, we can rebate up to 50% of the income/sales/withholding tax in any given year as long as, over the life of the deal, it doesn’t exceed 30%, which means we can frontload certain pieces of our incentives as well, which is a huge benefit for companies looking to relocate.
So, between those two incentives we can be extremely competitive with anyone in the United States, and the most important part about [them is] they are strictly post performance. Money is only given to a company after they’ve already made the investment in the state of Utah. We want to encourage [companies] to grow as big as they can as quickly as they can. Sometimes we set the percentage, and let them grow as quickly as they’d like, and it doesn’t artificially create a cap on some deals.
BF: Are there negotiations over the incentives?
Perry: There’s not a whole lot of negotiation. When a company makes an application to the state, it tells us what its desires are. We always know how much they’re looking for, and sometimes it’s very realistic, sometimes it’s not so realistic. But they provide the financials and we run the model. It’s an important point, because our incentives are always consistent in terms of how the numbers are derived and also in terms of how we recruit that particular industry. We don’t really want to get into a process where if you’re a bad negotiator you get a bad deal, or if you’re a good one you get a good deal. We try to give the right kind of deal to every company.
BF:What do you think of the incentive package that IM Flash was given in 2006?
Tom Bingham, President, Utah Manufacturers Association: I think it was appropriate, and the reason that we’re supportive … is because when you look at … those incentives, they have some requirements [such as companies] paying in excess of the average wage and creating an economic benefit to the state that lives on. So, we thought that was appropriate and think it’s appropriate with others who are bringing in jobs, particularly manufacturing jobs, because they pay nearly 150% of the average in the state. Those are the kinds of wages we ought to be attracting to the state.
BF: Can you tell me about the changes that have happened in Lehi because of IM Flash?
Jamie Davidson, Administrator, City of Lehi: When we go out and talk to potential individuals who want to [invest] in our community, they’re aware of the fact that [IM Flash] is here. Many [companies] that have come here do business with them. And I’m not saying that as a result of [IM Flash] we’ve had this huge influx of manufacturing, commercial, and offices, but a good number of people that do business with IM Flash want to be in close proximity to them, so … they come to Lehi and in the proximity of Lehi to be around that IM Flash facility.