SkyWater Technology's $1.8 billion project critical in microelectronics push

SkyWater Technology Inc.’s plan for a $1.8 billion semiconductor production facility at Purdue University isn’t as flashy as chip-related announcements in other states—like the $17 billion Samsung Electronics project in Texas or the $20 billion Intel Corp. development in central Ohio.

But economic development and microelectronics experts say the SkyWater deal is nonetheless a critical step in Indiana’s efforts to become a player in microelectronics.

It could also be the most significant step the Indiana Economic Development Corp. has taken to date in reviving the state’s once-booming electronics industry. But it’s not the only one. In May, Netherlands-based carmaker Stellantis announced a $2.5 billion commitment to open an electric vehicle battery facility in Kokomo with South Korean partner Samsung SDI.

What makes the SkyWater deal stand out is that it’s part of a national focus on boosting domestic semiconductor manufacturing and development amid global supply chain challenges and rising international tensions. Much of that attention has been about bringing what’s currently offshore production back into the country. SkyWater, based in suburban Minneapolis, is already a domestic producer.

The IEDC’s efforts this year have included hiring staff dedicated to attracting semiconductors and electronics companies, as well the creation of a $2.7 million task force called Accelerating Microelectronics Production & Development, consisting of industry professionals and research experts.

The state has also implemented several partnerships with Purdue, including a degree program and a microchip design studio deal with Taiwan-based manufacturer MediaTek Inc. at Discovery Park, to drive semiconductor innovation.

Jimmy Costa, senior vice president of innovation and semiconductor strategy for the IEDC, said the moves made so far are critical to giving Indiana a better chance of competing for bigger projects, as well as research and development opportunities, down the line.

“It’s a very large and complex value chain—there are literally hundreds, if not thousands, of companies that we see as opportunities for our state,” Costa said. “Our goal right now is to start lines of communication with as many of those as we can, in the hopes that, when and if they do make a decision to expand, that Indiana is on their radar.”

A quick decision

SkyWater’s decision to open a facility in Indiana came just two months after CEO Thomas Sonderman told IBJ the company hoped to bolster its presence in the state, beyond an existing partnership with the Naval Surface Warfare Center in Crane.

“I see us looking at multiple different angles to expand [the partnership in Crane]. There are a lot of states that are talking about semiconductors, and I can say that Indiana is putting words to action in a way that’s very compelling,” he told IBJ during the Indiana Global Economic Summit in May, which drew about 800 business owners and government and not-for-profit officials.

“I think Indiana has done a great job of removing a lot of the uncertainty, which makes it easier to make decisions when you want to move fast.”

Eight weeks later, SkyWater announced plans for the Purdue project. Sonderman said the global summit played a major role in that company’s decision to land in West Lafayette, as did Purdue’s plans to launch its semiconductor engineering degree.

Having a semiconductor plant at Purdue “means SkyWater will be immediately able to tap into that resource pool,” Sonderman said. “A deal was already definitely in the works, but that [summit] was a solidifying event for me, personally in terms of having Indiana as a partner, so it worked out very well.”

SkyWater already has semiconductor production facilities—commonly called fabs—in suburban Minneapolis and central Florida, as well as a presence near Crane. But the proposed facility in West Lafayette’s Discovery Park is expected to be the company’s largest yet, employing about 750 people. SkyWater produces 200- and 300-millimeter silicon-based wafers, each containing hundreds of individual semiconductor nodes used in electronic circuitry.

While that particular technology isn’t considered cutting-edge—companies like Taiwan Semiconductor Manufacturing Co., Samsung and Silicon Valley-based Intel are all pushing to put more semiconductors on larger wafers—Sonderman said this week that the Indiana facility will spur new ideas and research that could be capitalized upon for years to come.

Most of SkyWater’s contracts are for industrial and military applications, rather than consumer goods. The company is also different from most others making chips in the U.S. in that it oversees every step of the production process, including design, manufacturing and implementation into key electronic components.

‘Stepping stone’

Sonderman said that approach—and the innovation component in particular—could be beneficial for Indiana, because it could lead suppliers and others interested in adapting and implementing SkyWater’s technology to set up shop here. That’s already happened with the company’s Florida facility, he said.

“I think you’ll see original equipment manufacturers build a presence near the SkyWater fab, because we will be doing innovation,” Sonderman said. “This is kind of a moonshot moment where we must decide whether [the United States] wants to be a leader in semiconductor manufacturing. If we do it the right way, as this decade unfolds, you’ll see many fabs across the U.S., and I think we’ll have a concentration of them right in the Midwest—including Indiana, of course.”

He said that SkyWater’s investment is significant in what it can offer the state, and Purdue in particular.

Other companies like Intel, Samsung and TSMC are “obviously adding some scale to manufacturing and developing the workforce that is going to be running the fab,” he acknowledged. “But as far as driving innovation, driving more students to want to get engineering degrees, that really has to be done at the university level and in partnership with universities. The investment we’re making keeps dollars in the U.S., so that we can build a vibrant semiconductor ecosystem for the rest of this decade and beyond.”

Experts generally agree, noting that, despite the lower capital outlay, the project is still an important piece of the semiconductor puzzle for the state.

“It’s important to have all sizes of companies within the supply chain, within the state of Indiana, and to help them grow,” said Bryce Carpenter, vice president of industry engagement at Conexus, an organization focused on bringing advanced manufacturing jobs to the state.

“This could be a key stepping-stone for an even bigger announcement to come, where a company looks at the state and says, ‘OK, they’ve got expertise. They’ve got a research partner. They’ve got a facility at Purdue. We feel this is the right setting,’” Carpenter said. “This deal demonstrates tangible progress and puts a good foot forward as the state continues to try to build up” the semiconductor and electronics sector.

Stumbles along the way?

Indiana’s drive to bring new microelectronics jobs comes five years after the state’s last semiconductor fabrication site (it at one time had as many as six) closed in 2017. Electronics companies, including major manufacturers like Delco, P.R. Mallory and RCA, employed as many as 130,000 Hoosiers in the late 1960s, more than most other states in the nation. Today, the sector employs about 20,000.

While much of that decline reflected what the entire country was seeing—companies offshoring their manufacturing operations to Asia and Mexico to reduce labor costs—some believe Indiana could have and should have done more to preserve the state’s electronics industry.

Larry Wallman, owner of Indianapolis-based microelectronics distributor Hi-Tech Sales and Service Inc., said he has spoken with many who work in the industry and in economic development who believe Indiana has for years been uninterested in fostering the state’s electronics industry, even as officials have talked about the importance of advanced manufacturing.

Wallman—who watched from the front row as the state’s electronics industry declined over the past five decades—is president of the Indiana chapter of the International Microelectronics Assembly and Packaging Society, an organization focused on the growth of microelectronics and professional education.

“Indiana has had this reputation from coast to coast that we don’t want electronics—we’re kicking it out,” he said. “Now, we’re just … out of sync with everything.”

Current and former state economic development officials disagree.

Luke Bosso, managing director of government advisory services for consulting firm Katz Sapper & Miller, said the state has not been late to the effort to attract microelectronics firms. “We can realistically go back to a lot of places in February 2020 and ask a lot of states if their strategy was about semiconductors or things of that nature—and a lot would say they were in the same position as Indiana,” said Bosso, who was IEDC chief of staff in 2020. “And I think winning SkyWater shows that people are taking Indiana seriously from an electronics standpoint.”

With the SkyWater and other semiconductor announcements, Wallman acknowledged that it feels like the state is now taking notice of the sector’s importance to the economy—but added he’s skeptical as to whether it will be enough to shift Indiana back into a positive light.

“Something is better than nothing. … But at the same time, why did it take them so long?” he said, pointing to the departure of major manufacturers, along with other key companies like Western Electric, which manufactured phones for AT&T, along with semiconductor maker ST Semiconductors in Bloomington. “After 30 years, they finally decided to wake up.”

The IEDC’s Costa acknowledged that the state historically hasn’t marketed to the electronics industry “maybe as well as we should have,” but added there’s now a sense of urgency to ensure Indiana doesn’t get left behind as more semiconductor fabrication facilities and electric vehicle battery facilities come into the equation.

And while the IEDC won’t say if it competed for big semiconductor projects such as Intel, Samsung or the $30 billion Texas Instruments project announced last year—it doesn’t comment on those matters—sources told IBJ the state was considered for the Intel project before ultimately being passed over for Ohio.

That project could garner $100 billion in investment by the time it’s completed, including a new factory every one to two years, Intel officials said in May.

Dave Roberts, chief innovation officer for the IEDC, told IBJ before the SkyWater announcement that the state is committed to pursuing major semiconductor projects.

“What I can tell you is that, under Secretary [of Commerce Brad] Chambers’ leadership, we are very aggressive in pursuing any transformative projects that relate to the economy of the future, and semiconductors are squarely within that,” he said. “If [semiconductors] were not a priority for us, we wouldn’t be investing the significant resources that we are in that area. I think you’ll see more of the outputs of the effort. … here in the next few quarters, before the end of the year.”

CHIPS on the table

President Joe Biden is soon expected to sign legislation considered critical to the U.S. effort to onshore semiconductor production. The bill passed both chambers of Congress last week.

The CHIPS and Science Act would allocate $52 billion in direct subsidies and $24 billion in tax credits for semiconductor manufacturing efforts in the United States—something companies are expected to heavily lean upon to get their projects off the ground. It would also earmark $200 million in grants for training and education.

Biden has signaled he intends to sign the bill, the final product of legislation authored by Sen. Todd Young, R-Ind., and Sen. Charles Schumer, D-N.Y., in 2020.

“These investments by semiconductor innovators like SkyWater are occurring in anticipation of the legislation we’re passing,” Young said. “We’re creating incentives for research, design and manufacturing, in technologies that range from semiconductors to hypersonics to autonomous systems—all of which, incidentally, are areas where Indiana has a significant reservoir of expertise already.”

Young said that expertise will mean the state can expect to get a piece of the pie—more so now, with SkyWater’s commitment—while also competing for other opportunities outlined in the bill, like an innovation hub designation that would further encourage growth in Indiana’s electronics and technology manufacturing sector.

SkyWater’s Sonderman acknowledged that, although the state is providing $29 million in incentives for the company’s West Lafayette project, the company is closely watching the outcome of the CHIPS bill. The company said it expects federal and state funds to cover two-thirds of the cost of the construction of its West Lafayette plant.

“Because of our relationship with Navy Crane … we’re really in a situation where we believe partnering with Purdue makes sense whether CHIPS happens or not. But [if the bill passes], we believe everything will move forward faster,” he said.

“And what we’re doing with Purdue is the perfect example of what an investment from CHIPS should look like. It’s addressing three [major] components—workforce development, innovation and scale manufacturing—with one investment,” versus what many companies are doing by working toward only one or two of those areas.

Craig Seidelson, an assistant professor of operations and supply chain management at Purdue, said new chip manufacturing facilities are so expensive that most companies would abandon U.S. construction plans if they didn’t receive a government subsidy. In fact, Intel said last week it is holding off on moving forward with its Ohio project until CHIPS or a similar bill is passed.

“There’s this big pot of money … because this industry, as we’re being shown by the federal government, lives and breathes and dies by how much federal subsidy you can get,” he said. “And we’re not talking millions; we’re talking billions.”

What’s next?

With or without federal subsidies, states are often left on the hook for incentives of their own. In Ohio, the Intel project is expected to fetch $2 billion in state and local funding. The Samsung plant in Texas will get nearly $1 billion.

Seidelson said he’s not sure Indiana should lean heavily into the manufacturing portion of the semiconductor industry, because state law limits what the IEDC can offer and manufacturing deals generally include massive incentives.

“I just don’t think that [heavily subsidizing semiconductors] is the answer for Indiana,” he said. “The answer for Indiana is R&D.”

But Conexus’ Carpenter disagreed, saying the state can keep itself in conversations for both manufacturing and innovation-driven projects—much like what it did for SkyWater, which promises both. He said tapping into suppliers could also be a big boon, particularly with Columbus, Ohio, where Intel is going, being only 100 miles from Indiana’s border.

“It’s very important to go down both roads,” he said, “because you’ve got to now help build a supply chain for SkyWater. And then you’ve got to leverage SkyWater to help you attract the even bigger company that looks at SkyWater as one of their largest suppliers.”

Bosso said he expects the state to continue its current strategy—going after every part of the supply chain—and that it will likely be successful in landing additional semiconductor facilities and innovation centers.

“I would say this is the absolute right strategy,” he said. “The state put a great package together, but Purdue being involved in this is really important for [semiconductors] to come into Indiana.”