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November 16, 2003

Hope for the Upstate Economy in the Next Wave of Computer



ALBANY, Nov. 15 Workers are still putting the finishing touches on NanoFab 300 South, a

futuristic building of blue glass and white steel just erected here.

The name is geek-speak for a factory that makes microchips on a wafer-thin copper and silicon disc 300

millimeters about a foot in diameter. It is in keeping with Gov. George E. Pataki's hope that what

is going on within the building's immaculate innards will somehow transfigure the moribund and

rusting upstate economy into a hive of cutting-edge industry.

Next to NanoFab 300 South, a second building is already going up: NanoFab 300 North. As

construction workers in hard hats crawl over the structure, welding and hammering, research scientists

from the state university, the consortium International Sematech, I.B.M. and Tokyo Electron Limited

have begun moving enormous machines into the first building, where they hope the next generation of

microscopic computer chips will be born.

"It's the size of it, the critical mass," says Alain E. Kaloyeros, the center's executive director. "The

governor put in place the level of investment that really makes New York unique."

The loss of manufacturing jobs across the northern and western parts of the state has stumped Mr.

Pataki and other state leaders for years, and has become a political liability. Senator Hillary Rodham

Clinton, who won her campaign in New York in 2000 partly because of the faltering economy upstate,

recently announced that she was forming a commission to study the problem.

To a large degree, Mr. Pataki has staked his legacy on what is happening in the buildings here, under a

program called Albany NanoTech, and at four other research and development sites across the state.

For three years, he has declared repeatedly that his dream is to turn the old Erie Canal corridor into a

place where new technologies are developed and futuristic products made. His aides say Mr. Pataki

wants the five state-sponsored research centers nonprofit partnerships among the state, universities

and private corporations not only to make scientific breakthroughs, but also to build prototypes.

What is unusual about the Pataki administration's effort is that the state itself has pledged $620 million

for the next five years to help develop technology that could be turned into commercially viable

products. In the past, most of the cash for research into chip-making and other scientific advances came

from the federal government or the private sector.

"He's way ahead of the curve relative to the other states," said an I.B.M. senior vice president, John E.

Kelly III.

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It remains a matter of debate whether these gambles will pay off with a large number of jobs anytime

soon. Mr. Pataki and his aides hope the new technology developed at the research centers, along with

the workers trained there, will lure chip plants and other high-tech manufacturers to the region.

But some analysts say there is always the danger that the businesses will simply take the technology

and run, building the products overseas, where labor is cheap and environmental laws weaker. That has

been the trend in recent years develop technology here but build chip fabrication plants overseas, in

places like Taiwan and China, where huge new markets await rather than in the United States.

"Where you put that plant has more to do with the cost of building and government incentives than just

about anything else," said Kevin Krewell, the senior editor of Microprocessor Report, an industry

journal. "Where the technology is developed has little to do with where you actually put the plant."

The governor's aides, however, cite I.B.M. as an exception to that rule. In 2001, I.B.M. built a $2.5

billion chip-fabrication plant at its corporate park in Fishkill, N.Y., after the state provided more than

$500,000 in tax incentives, grants and loans.

To attract other chip makers, the administration has already identified seven sites for chip plants, built

the preliminary infrastructure and promised to expedite the issuing of all necessary permits.

The chip-making industry is not one that employs large numbers of factory workers with minimal

education, analysts point out. Fabrication plants are highly automated and run by engineers. History

suggests that the big boost in jobs is more likely to come from the dozens of companies that supply a

research and development center with everything from silicon to coffee cups, as well as the ripple effect

of small companies that spin off as researchers try to find niche markets.

"You want the spinoff, new companies starting," said Douglas Henton, president of Collaborative

Economics, a consulting firm that helped Austin, Tex., and Raleigh, N.C., develop high-tech centers.

"That's where you really see the real job impact."

Mr. Henton added, "The immediate impact on jobs may be slow, but the long-term impact may be


So far, New York's five research and development centers have created few new jobs. About 350

researchers are working at the center in Albany, but most of them are highly educated transplants from

other states. The hope is that about 1,000 people will have jobs there by the summer of 2005, Dr.

Kaloyeros said.

Those jobs are being created against a backdrop of anemic job growth across the state. According to the

Business Council of New York State, upstate New York has lost one in five manufacturing jobs over

the last five years, about 91,000 positions. Total employment has grown very slightly, mostly because

of a growth in government jobs and a slight uptick in service industries.

Mr. Pataki has said that the only way to stop the exodus of factory jobs is to develop new industries,

which is why he and legislative leaders are putting the state's money on fostering high-tech


Besides investing $380 million into the Albany research center, the state is spending $110 million to

help build a similar center devoted to computerized genetic research in Buffalo. Another $43 million in

state money is being used to rehabilitate an old Xerox research plant in Rochester to serve as a center

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for research into infotonics, the use of light to transmit energy and information.

In Syracuse, $37 million in state aid has been invested for equipment and a building where researchers

will perform experiments intended to improve environmental systems, like air-conditioning. The state

also plans to invest $50 million in a center on Long Island for research into better wireless


The Albany center for nanoelectronics and the search for computer chips on a molecular scale is much

closer to being up and running than the others, state officials say.

"For 20 years we have been providing money for basic research, and the governor wanted to go beyond

that," said one of Mr. Pataki's senior policy advisers, Jeffrey Lovell. "We are trying to use the

universities as economic engines rather than just having these guys sit back and do their basic research."

Not surprisingly, executives in the semiconductor industry applaud the state's contributions. In fact, Mr.

Pataki was named Man of the Year last week by the Semiconductor Industry Association in San Jose,

Calif., in the first presentation of the award to an elected official.

"He is functioning as a catalyst to embrace the development of technology in the state," said the

association president, George Scalise. "They are making a major investment in the facilities. That is

very important, bold and unique in our view."

Other executives said the award came about largely because of lobbying within the trade organization

by I.B.M., which has invested $100 million in the Albany NanoTech center. I.B.M. is also a member of

International Sematech, a consortium that has put $160 million into a research project at NanoFab and

is one of the investors backing Tokyo Electron Limited's research, a $200 million commitment to be

matched with $100 million from the state.

Dr. Kaloyeros says the NanoTech research effort is unique in several ways. First, when both buildings

are completed next year, the researchers will have more clean-room space 60,000 square feet of

dustless area for chip fabricating and other work than any other university-based research center in

the world.

The Albany research center, a subsidiary of the Research Foundation of the State University of New

York, has insisted, in its agreements with corporations, that it must own the $300 million of equipment

at the center, which means the center itself has control over an assembly line for producing prototypes

of the newest generation of chips. As a result, the companies that do research there cannot simply walk

away, and university researchers are guaranteed time on the equipment, Dr. Kaloyeros said.

Finally, the center will be operating as a training ground for workers seeking jobs in the chip industry,

from engineers to factory workers with two-year associate degrees.

In the end, the success of Mr. Pataki's effort may depend on things out of his control. The technology

industry has been in a prolonged downturn and there has not been much new investment in chip plants

in the United States in the last three years.

In the last two weeks, however, the semiconductor trade association and other analysts have predicted

almost a 20 percent increase in demand for chips next year.

If it happens, the governor is betting the Albany NanoTech facility will be poised to catch the wave.

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