Showered with subsidies, GlobalFoundries, Micron are cutting jobs

One face is optimistic and looking forward. The other is pessimistic and looking backward.

While the chip industry — from Albany Nanotech to GlobalFoundries — has made the Capital Region and parts of upstate New York into a technology hub that is now rivaling places like Austin, Texas and Portland, Ore., it can also be cruel and even vicious at times.

Just months after President Joe Biden signed the $52 billion CHIPS Act that will provide billions of dollars to chipmakers to build new factories in the United States and expand existing facilities — and just weeks after U.S. Senate Majority Leader Charles Schumer and Gov. Kathy Hochul celebrated a landmark deal to convince Micron Technology to build a massive new factory outside of Syracuse, the industry is starting to signal that it needs to put the brakes on spending.

GlobalFoundries and others have said they plan job cuts and hiring freezes. And Micron says it will cut memory chip production by 20 percent, along with pulling back on capital spending.

The situation is raising eyebrows because of the number of incentives New York state and the federal government are offering these companies to build new plants here in upstate New York.

And the chipmakers themselves lobbied for the billions, saying the industry needed to expand their manufacturing in the U.S. to counter China – especially since China has been threatening to invade the island nation of Taiwan where most of the world’s most advanced chips, including those used to power Apple’s iPhone, are made.

Those government incentives, which have yet to be handed out, include billions in grants available through the CHIPS Act, and $10 billion in tax breaks being offered through the Hochul administration. 

But that’s just how the chip industry works. When you operate factories that cost up to $10 billion each, the easiest way to go bankrupt is to operate them at full capacity when demand is falling.

When the chip industry is doing well, a chip factory is like printing money. But when the chip industry is doing poorly — a humming factory is like money fire.

Right now, the chip industry is facing a tough outlook for the first half of 2023 as customer demand for chips, especially for smartphones, is softening due to several economic factors, including persistent price inflation, high energy prices, a recent pummeling of technology company stocks and a crisis in the crypto market.

SEMI, a semiconductor industry trade group based in Washington, D.C., is forecasting chip shipments to go into negative territory in 2023 but rebound in 2024 and 2025 to about 6 percent annual growth.

“The growth is expected to temper in 2023 due to challenging macroeconomic conditions but is forecast to rebound in the years that follow on strong demand for semiconductors used in data center, automotive and industrial applications,” SEMI wrote in a research note.

GlobalFoundries says it informed its employees across the globe that it has instituted a hiring freeze and will be looking to eliminate jobs. Micron says it will need to cut the production of memory chips at its existing chip fabs by 20 percent while also cutting its capital spending on things like new manufacturing equipment. (Micron refers to these chips in general terms as “bits”) 

“Micron is taking bold and aggressive steps to reduce bit supply growth to limit the size of our inventory,” Micron CEO Sanjay Mehrotra said in a statement issued on Wednesday. “We will continue to monitor industry conditions and make further adjustments as needed.”

It is unclear if these actions will ultimately result in delays to its plans to spend $100 million on a new factory in the Syracuse suburb of Clay that could one day employ as many as 9,000 people. The company, the only major memory chip maker based in the U.S. still forecasts higher-than-average growth once chip demand improves.

“Despite the near-term cyclical challenges, we remain confident in the secular demand drivers for our markets, and in the long term, expect memory and storage revenue growth to outpace that of the rest of the semiconductor industry,” Mehrotra continued. 

Robert Maire, a chip industry analyst who runs a firm called Semiconductor Advisors in New York City, notes that Micron had already signaled significant cuts to capital expenditures earlier this year, and this latest announcement could mean it “will all but go to zero” for the time being.

The oversupply of memory chips, Maire said in a research note published on Wednesday, is due in large part to technological advances that make memory chips more powerful than previous generations. There is no need for end-users to buy new chips right now.

“This fact is also the same with every other memory maker from Samsung (the largest memory chipmaker in the world) on down, so we will be floating in excess memory chips for a long time until demand picks up to absorb the excess supply brought about by technology advancements,” Maire added.

Maire believes that job cuts could follow at Micron, mirroring steps taken at GlobalFoundries as well as at Intel, which is based in Silcon Valley and is the world’s largest chipmaker. And there could be delays in Micron’s new factory planned for Idaho where it is headquartered, which could delay plans to begin construction in Clay in 2024. Chipmakers call their factories “fabs,” as in fabrication facilities.

“Micron’s new fab in Boise will clearly be delayed as need for additional capacity is nonexistent over the next several years,” Maire continued. “The fab after Boise in New York will clearly be pushed back even further.”

A Micron spokesperson could not immediately be reached to answer questions about its New York plans. GlobalFoundries CEO Thomas Caulfield told analysts last week that the company’s plans to build a second fab at its headquarters in Saratoga County where it has an existing factory are dependent on customer demand and long-term orders that have yet to be found.

GlobalFoundries employs 3,000 people at the Luther Forest Technology Campus in Malta. A second fab at the location would add an additional 1,000 people.

“That’s the part we’re all working on now to make sure we can go secure that demand, that certainty of business so that we make these investments with confidence and we make these investments with the right returns that any business would want,” Caulfield said.