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Arizona loses more manufacturing & clean energy opportunity
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Representative empty manufacturing facility.
Microsemi Corporation, a notable manufacturer of high performance analog mixed signal integrated circuits and high reliability semiconductors, announced this week that it will be undergoing consolidation plans that will result in the closure of its manufacturing plant in Scottsdale, Arizona by April 2011. The company stated that the decision is linked to its inventory reduction program focused on improving its overall cost framework and business model. Founded in 1960 and headquartered in Irvine, CA, this company has other manufacturing facilities in California, Massachusetts, Oregon, Ireland, and Shanghai, China. Their principal markets include: implanted medical devices, defense/aerospace and satellites, notebook computers, monitors and LCD TVs, automotive, mobile connectivity, industrial power switching, and power control for communications applications.
Microsemi expects that once the consolidation is complete in approximately 18 months, annual savings regarding operating income will be $20 million to $25 million. In the fourth quarter of fiscal year 2009, Microsemi expects to record one-time charges for restructuring and other reserves of between $24 million and $26 million for severance and related benefits, lease termination and facility closure costs. Additional consolidation costs of $3 million are also expected over the closure period. The Scottsdale facility's remaining product lines will be transferred to other Microsemi facilities, which means there is a strong likelihood manufacturing will be outsourced to Shanghai, China and other U.S states.
The mass exodus of semiconductor chipmaking and manufacturing, in general, from what was formerly known as the Silicon Desert is nothing new. In recent years, many formidable microelectronics companies have decided to pull out of the Phoenix, AZ area for various reasons, including its less competitive corporate tax rate and other incentives to other states and countries, and cost-savings in transferring production to cheaper labor markets overseas. Several companies, whom have also announced the closing of Arizona semiconductor-related manufacturing include: Motorola, Microchip, On Semi, ASM America, and STMicroelectronics. The state has been unable to entice a significant level of other companies, and green jobs for that matter, into the Valley of the Sun to replace its former manufacturing base and relied on its prior growth in real estate, construction and retail, which after its collapse, has led to one of its worst budget deficits in history and approximately 10 percent unemployment- and rising. Of course, this trend has occurred in other states such as Michigan, Nevada and Florida, but in the case of Michigan, they have been more aggressive in their efforts to attract corporate development and specifically in regards to cleantech.
However, many companies such as Microsemi were not insightful enough to capitalize on green stimulus funding in the development of new product lines to support the emerging green revolution of energy-efficient and cleaner energy components and devices including: lighting-emitting diodes, advanced batteries, smart grid elements, and low-power circuitry for ENERGY STAR appliances. Many semiconductor companies such as: Toshiba, Sony, Sanyo, Mitsubishi, Applied Materials, and Spire Corporation, among many others, have diversified their product portfolio into the solar space, due to synergistic elements and overlaps in processing and know-how, through mergers and acquisitions and organic enterprise. Consequently, the stalling of energy reform legislation on Capitol Hill including a national renewable portfolio standard and climate change bill has not aided this positive trend, as the cleantech market requires the passage of game-changing legislation to boost confidence for serious investment and expansion.
Ironically, as the Phoenix area loses another microchip company and possible solar cell business, a solar module and power development company, named Phoenix Solar has been recently delegated by E.ON Climate & Renewables, to plan and build a solar power plant with a capacity of 1.5 megawatts (MW) in France. However, amidst Phoenix’s sunny climate and highly-educated technical workforce, it lacks any significant photovoltaic manufacturing, as Phoenix Solar is actually based in Germany. Following the recent establishment of Phoenix Solar's French subsidiary, Phoenix Solar SAS, this project is the company's first in the emerging French photovoltaic market. The company will be using crystalline silicon solar modules spread across a 10 acre site to generate about two million kilowatt-hours of electricity annually. Yet, there is hope for Arizona, as the state signed a bill into law, which takes effect in January 2010, offering tax credits and other incentives to solar process technology companies.
In comparison, there are companies with foresight to look beyond the bleak current economic climate to see America’s green energy future. MEMC, a leading manufacturer of silicon wafers for both microchips and solar cells, has signed a deal to acquire SunEdison, LLC, based in Maryland. The acquisition is expected to close by the end of 2009, and is subject to closing conditions and receipt of regulatory approvals. This agreement requires US $200 million to be paid at closing to SunEdison security holders, which will be paid 70 percent in cash and 30 percent in MEMC stock. The acquisition is a major move for MEMC to a more vertically-oriented solar business model, but it will be in a position to capitalize on the U.S. solar frontier once it fully arrives. MEMC will now participate in the actual development of solar power plants and commercialization of clean energy. SunEdison has successfully built about 300 solar power plants representing approximately 80 MW of generating capacity on the rooftops and grounds of customers in the United States, Canada and Europe.
This announcement comes as Lawrence Berkeley National Lab recently released a report entitled "Tracking the Sun II: The Installed Cost of Photovoltaics in the U.S. from 1998 -- 2008." The report stated that the average cost of solar installations in the U.S. fell by more than 30 percent from 1998 to 2008, partially due to the success of increased incentives at the state and local level. Moreover, the study indicated that after a three-year plateau, costs decreased by 3.6 percent from 2007 to 2008, as the industry approaches grid parity, which is competitiveness with conventional energy sources. The full report may be downloaded at http://eetd.lbl.gov/ea/emp/re-pubs.html. As solar costs decline, there will likely be an increasing trend of semiconductor companies going solar, especially if key legislation on Capitol Hill is signed into law.
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