Texas Power Outages Illustrate the State’s Importance to the Semi IndustryMarch 28, 2021 by Luke James
The outages last month marked yet another setback to an industry that was already having serious trouble with meeting demand from automakers.
Texas has been home to semiconductor manufacturers since Texas Instruments formed in Dallas back in 1951. While the majority of Texas’ semiconductor production occurs in Austin—IBM, Cypress, Samsung, NXP, AMD, and Intel are just a few manufacturers with a presence here—production has also taken place in parts of Dallas and the midland areas.
In the last year alone, several big-name tech firms and venture capitalists have established a presence in Texas. In December, Oracle announced that it was moving its headquarters from Silicon Valley to Austin a mere few weeks after Tesla CEO Elon Musk and Hewlett Packard (HP) announced the same.
Texas Attracts Big-name Chipmakers
The influx of tech firms moving to Texas has led to some commentators referring to it as the “next Silicon Valley”—but we’ve heard this before. While it’s true that more and more companies are actively vying to escape from Silicon Valley, they’re not just targeting Texas but also the metropolitan areas of other states including Colorado and Arizona.
Texas Instruments announced plans to build a $3.1 billion chip plant in Richardson, Texas back in 2019. Image used courtesy of The Dallas Morning News
It does seem that Texas has the upper hand on other locations, however. A recent survey by Blind found that 32% of FAANG professionals (that’s the five most prominent American technology companies: Facebook, Amazon, Apple, Netflix, and Alphabet (Google)) do indeed think that Texas is the next Silicon Valley. In contrast, 36% said that Silicon Valley will always be America’s main tech hub.
Texas Storms Halt Semiconductor Production
Labels aside, if the recent power outages in Texas have taught us anything, it’s that Texas plays a huge role in the global semiconductor industry.
During the worst of the storms that led to the power shortages, rolling blackouts, and full-blown outages in mid-February, several Texas semiconductor firms were forced to shut down their production plants. This event sparked discussions on whether renewable energy sources could have ameliorated the blackouts at the infrastructure level.
According to reports at the time, Samsung, which has multi-billion-dollar operations in Texas in the form of two Austin-based factories, ceased production at the request of local authorities on February 16. NXP Semiconductor and Infineon, both of which provide chips and parts to automakers, also had to halt production at their respective facilities.
These shutdowns came as the world continued to grapple with the huge and still ongoing semiconductor shortage crippling the automotive industry. Several automotive factories have themselves had to idle factories and scale back their operations due to a limited supply of chips.
The Troubles With Reopening Fabs
Although President Biden signed an executive order compelling the federal government to conduct a 100-day review into semiconductor supply chains, plants like Samsung and NXP, which typically operate 24 hours a day, lose millions in lost productivity for each day their operations aren’t running at their full potential.
NXP, which produces chips for automobiles at its Austin facility, was already struggling to meet demand and fulfill orders prior to February’s power outages. Its Texas operations were shut down on February 15th as utility providers prioritized services to residential areas and critical health, safety, and human services. It wasn’t until 24 days later on March 11 when NXP’s operations in Texas resumed with limited production.
NXP's Austin fab primarily creates chips for IoT, industrial, and automotive industries. Image used courtesy of NXP Semiconductors
“Due to damage from the storm, subsequent loss of utilities and the ongoing restarting of production, approximately one month of wafer production has been lost to date from NXP’s two Austin-based wafer manufacturing facilities,” reads an NXP press release.
While NXP does not believe that the outage will impact its Q1 2021 financial estimates, the overall situation in Texas may have made an already bad situation even worse.