Chapter 7

The New York Nanotechnology Initiative

New York state’s two-decade long effort to transform the upstate region into a leading center of nanotechnology R&D offers a dramatic example of how the initiative of a single U.S. state can transform the global competitive map in a strategic economic area. Reflecting large-scale investments, particularly in university research infrastructure, and collaborative arrangements with the private sector and regional development organizations, New York has altered the competitive landscape in the semiconductor industry, at least partially staunching the offshore flow of U.S. investment and jobs in this sector that has been a longstanding concern of policymakers and the U.S. semiconductor industry itself. Because the sheer scale of the financial and human capital that New York has been able to deploy cannot be matched by most U.S. states, the applicability of New York’s nanotechnology model may be limited. At the same time, New York’s success to date raises the question whether essential principles of the model could be employed to address similar challenges, if not on a state-by-state basis, perhaps on a regional one.

The epicenter of New York’s semiconductor effort is the State University of New York at Albany. SUNY is the largest university system in the United States with 88,000 faculty and 468,000 students and a research budget of nearly $1 billion.1 SUNY’s audacious goal has been stated by Chancellor Nancy L. Zimpher as serving as a “key engine of revitalization for New York State’s economy.”2 SUNY Albany is one of six “NY Innovation Hubs” established to link university-based research to regional innovation, and sustained investments

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1Presentation by Dr. Tim Killeen, “The New York Innovation Economy and the Nanotechnology Cluster: The Role of SUNY,” National Research Council Symposium, “New York’s Nanotechnology Model: Building the Innovation Economy” Troy, New York, April 4, 2013.

2Presentation by Dr. Nancy L. Zimpher, “The Power of SUNY,” National Research Council Symposium, “New York’s Nanotechnology Model: Building the Innovation Economy” Troy, New York, April 4, 2013.



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Chapter 7 The New York Nanotechnology Initiative New York state’s two-decade long effort to transform the upstate region into a leading center of nanotechnology R&D offers a dramatic example of how the initiative of a single U.S. state can transform the global competitive map in a strategic economic area. Reflecting large-scale investments, particularly in university research infrastructure, and collaborative arrangements with the private sector and regional development organizations, New York has altered the competitive landscape in the semiconductor industry, at least partially staunching the offshore flow of U.S. investment and jobs in this sector that has been a longstanding concern of policymakers and the U.S. semiconductor industry itself. Because the sheer scale of the financial and human capital that New York has been able to deploy cannot be matched by most U.S. states, the applicability of New York’s nanotechnology model may be limited. At the same time, New York’s success to date raises the question whether essential principles of the model could be employed to address similar challenges, if not on a state-by-state basis, perhaps on a regional one. The epicenter of New York’s semiconductor effort is the State University of New York at Albany. SUNY is the largest university system in the United States with 88,000 faculty and 468,000 students and a research budget of nearly $1 billion.1 SUNY’s audacious goal has been stated by Chancellor Nancy L. Zimpher as serving as a “key engine of revitalization for New York State’s economy.”2 SUNY Albany is one of six “NY Innovation Hubs” established to link university-based research to regional innovation, and sustained investments 1 Presentation by Dr. Tim Killeen, “The New York Innovation Economy and the Nanotechnology Cluster: The Role of SUNY,” National Research Council Symposium, “New York’s Nanotechnology Model: Building the Innovation Economy” Troy, New York, April 4, 2013. 2 Presentation by Dr. Nancy L. Zimpher, “The Power of SUNY,” National Research Council Symposium, “New York’s Nanotechnology Model: Building the Innovation Economy” Troy, New York, April 4, 2013. 143

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144 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES in the university’s research infrastructure have it to become one of the foremost centers of nanotechnology research in the world and a regional economic driver. UPSTATE NEW YORK: THE ECONOMIC CHALLENGE In the mid-1990s, upstate New York (the region north of the New York Metropolitan Area) had “one of the weakest, if not the weakest, economies of any region in the country.”3 Economic mainstays of the region, such as Xerox, Kodak, and Bausch & Lomb, were shedding thousands of jobs, and companies and individuals were leaving to pursue opportunities in other parts of the country. Between 1995 and 1997, “departures exceeded arrivals in upstate New York by nearly 169,000 people,” and population in the region declined by about half of one percent. An engineering major at Syracuse University observed anecdotally in 1997, of the 40 engineering majors that had passed through his fraternity since 1993, only 3 remained in the region.4 The stagnation of the regional economy, attributed, in particular, to the erosion of the manufacturing sector, contrasted with the nation’s generally robust economic performance. Between 1990 and 1996, employment in upstate New York declined by 1.3 percent while the U.S. enjoyed 15.0 percent job growth.5 At the same time, upstate New York enjoyed intrinsic advantages in competing for technology-intensive economic development. It was already the site of sophisticated R&D operations by world-class companies such as IBM, Corning and GE.6 The New York state educational system compared favorably to those of other states at a time when U.S. high tech companies were increasingly complaining about deficiencies in workforce education and training.7 And as events would show, New York’s political leadership proved capable of sustained and persistent commitment to long range economic development objectives despite multiple changes of administration. As a result, in one of the most extraordinary developments in recent U.S. industrial history, 3 Mark M. Zandi, Chief Economist, Regional Financial Associates, an economic consulting firm based in West Chester, Pennsylvania, in “As U.S. Economy Races Along, Upstate New York is Sputtering,” New York Times May 11, 1997. 4 “As U.S. Economy Races Along, Upstate New York is Sputtering,” New York Times May 11, 1997. 5 “Is Upstate New York Showing Signs of a Turnaround?” Federal Reserve Bank of New York, Current Issues in Economics and Finance May 1999. 6 Darren Suarez, Director of Government Affairs, The Business Council of New York State, “Challenges and Opportunities for the New York Innovation Economy,” National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 3, 2013. 7 Gary Patton, Vice President, Semiconductor Research and Development Center, IBM, recalls that 27 years ago he relocated from California to New York, in significant part, because the schools made it a good place to raise a family. Citing California’s Proposition 13, he said “I could see that California schools would be on a downward spiral. New York was much better.” He emphasizes the “importance of education for this region and the country.” Presentation by Gary Patton, National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 4, 2013.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 145 upstate New York has given rise to “Tech Valley,” the site of the most advanced semiconductor manufacturing operations in the world and arguably the nation’s preeminent center of nanotechnology R&D. This effort, which has strategic implications for the U.S., is particularly noteworthy because—despite some federal assistance—it has been driven and funded largely by the state of New York and New York-based companies and implemented by the state university system (SUNY), local development organizations, and local firms. THE SEMICONDUCTOR ADVANTAGE—AND CHALLENGE Semiconductors are “the premier general purpose technology of our post industrial era.”8 Today they comprise the basic enabling technology for virtually any device that moves or which stores, transmits and manipulates information. Semiconductors are a premier U.S. export industry, second only in revenue generated to aerospace products, and are a source of high wage employment—accounting for nearly 245,000 U.S. jobs in 2011 with an average salary 2.5 times higher than the average for U.S. workers.9 Semiconductors are critical to national security because they provide the basic technological underpinning for virtually every U.S. defense system and weapons platform.10 Ajit Manocha, the CEO of New York-based GlobalFoundries, one of the world’s largest semiconductor manufacturers, characterizes semiconductors as “the most important strategic technology on this planet,” and regards U.S. advances in semiconductor technology as “the crown jewels of this country.”11 The semiconductor industry originated in the United States and the U.S. semiconductor sector remains the world leader in technology levels and market share. However, it faces daunting challenges as advances in technology push the reduction in semiconductor circuitry to the extreme physical limits of miniaturization.12 The cost of R&D and semiconductor fabrication has escalated in a spectacular fashion, with the cost of a current-generation wafer fabrication facility exceeding $3 billion and the next generation escalating to $10 billion or more. Semiconductor companies have responded to these pressures through collaboration and, increasingly, the outsourcing of research and production functions entailing the highest costs and greatest risks. A growing number of U.S. semiconductor firms are “fabless,” meaning that they outsource their 8 National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, C. Wessner, ed., Washington, DC: The National Academies Press, 2003, p. 9. 9 Semiconductor Industry Association. 10 Industrial College of the Armed Forces, Electronics 2010, Industry Study Final Report, National Defense University, Spring 2010. 11 Ajit Manocha, “Keynote Address,” National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 3, 2013. 12 See presentation by Dr. Michael Polcari, IBM, “Current Challenges: A U.S. and Global Perspective,” in National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, op. cit., pp. 111-121.

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146 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES designs to semiconductor “foundries” for production, e.g., companies that manufacture semiconductors on a contract basis in return for a service fee. As a number of foreign governments have sought to establish and promote indigenous semiconductor industries, the U.S. has found its leadership in the industry challenged since the beginning of the 1980s.13 The disaggregation of R&D and production functions which began in the 1990s created an opening for national governments to establish semiconductor foundries and other entities providing outsourcing services to the semiconductor industry. This has resulted, in effect, in a partial migration of production functions from the U.S. to those countries. The foreign foundries have offered a cost advantage over U.S.-based production because the foreign operations benefited from lower taxes and massive government financial assistance.14 In addition, in recent decades, some foreign governments have offered incentives to U.S.-based semiconductor firms to establish local R&D and production operations.15 In 2006, Craig Barrett, then CEO of Intel, the world’s largest producer of semiconductors, commented on the factors underlying his company’s decision on where to locate new manufacturing facilities: The cost to build and equip a new wafer fabrication facility today is $3 billion or more. Where, and when, to build a fabrication plant is the largest ongoing financial decision a semiconductor CEO must make…[I]t costs $1 billion more to build, equip, and operate a facility in the U.S. than it does outside the U.S....[M]ost of the $1 billion cost different (about 70%) is the result of lower taxes; also, if the taxes were combined with capital grants, then as much as 90% of the cost difference occurs [as a result of government policies](emphasis added).16 As a result of these developments, the U.S. was experiencing a migration of production and, to a lesser degree, R&D functions to other countries, particularly in the East Asian region.17 13 See generally Thomas R. Howell, “Competing Programs: Government Support for Microelectronics,” in National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, op. cit. 14 See National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, op. cit. 15 In 2005 Israel concluded a deal with Intel pursuant to which the company would install a state-of- the-art fab (300mm, 45nm) at Kiryat Gat, in which a $1 billion package of incentives was the decisive factor in Intel’s locational decision. “Intel VP: Extra Aid Brought Fab 28 to Israel,” Israel Business Arena December 1, 2005. 16 Statement of Craig R. Barrett before Subcommittee on Select Revenue Measures, House Ways and Means Committee June 22, 2006. 17 Semiconductor Industry Association, Maintaining America’s Competitive Edge: Government Policies Affecting Semiconductor R&D and Manufacturing Activity, March 2009. As of 2007 Singapore, with a population of only 4 million people, had an “incredible” array of then state-of- the-art 300mm wafer fabs. The CEO of Qimonda, a German firm which operated one of the five

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 147 The prospect of large-scale out-migration of semiconductor manufacturing operations has troubling implications for future U.S. competitiveness and security. Process R&D capabilities—that is, the know-how necessary to operate semiconductor manufacturing facilities—tends to be co- located with the state-of-the-art plants. Loss of those plants to other countries normally means the loss of the people and the know-how needed to run them. Similarly, the complex supply chains needed to support wafer fabrication and other production and testing functions tend to migrate with the fabs themselves. The prospect of the substantial relocation of much of the infrastructure of the semiconductor industry, as well as the associated jobs, to sites outside the United States threatens to have adverse ripple effects throughout the U.S. economy. NEW YORK’S OPPORTUNITY The mounting competitive pressures on the U.S. semiconductor industry presented an opening to New York policymakers seeking to reverse economic decline in the state’s Capital region. In the early 1990s, New York’s then-Governor George Pataki convened a group of stakeholders to address the fact that much of upstate New York was an “economic shambles,” hemorrhaging manufacturing jobs in traditional sectors like steel as well as high- tech jobs from companies like GE, Xerox, and Kodak. The Pataki group decided that an integrated R&D, education and commercial strategy built around a Governor’s Center of Excellence and anchored by a university was needed. With the encouragement of IBM, the governor’s group chose “nanotechnology”—that is, the ability to manipulate matter at the atomic level— as the thematic area for this effort.18 Nanotechnology was chosen because of the cross-cutting nature of the technology, with potential applications in many sectors. This choice also reflects the influence of then SUNY-Albany Professor Alain Kaloyeros, a physicist specializing in materials science who was active in the field.19 The first sector to feel a substantial impact from New York’s commitment to nanotechnology was the semiconductor industry.20 fabs, gave the rationale for choosing Singapore as the site: “In Singapore, we have found excellent conditions. The overall package of low taxation, incentives and factors such as highly skilled labor and strong infrastructure makes Singapore our place of choice to implement our fully-owned volume production in the Asian market.” Ibid, citing “Resurrection of 12” Fabs in Singapore,” Sikod April 27, 2007. 18 Presentation by Pradeep Haldar, Vice President and Professor, SUNY-Albany CNSE, National Research Council symposium, New York’s Nanotechnology Model: Building the Innovation Economy, Troy, NY, April 4, 2013. 19 Interview with Karen Hitchcock, President, SUNY-Albany, 1996-2004, Troy, NY, April 4, 2013. Nanotechnology applications exist in telecommunications, electronics, clean energy, aerospace, pharmaceuticals and medicine, and national defense. 20 In 1993, Alain Kaloyeros helped persuade the state to fund the Center for Advanced Thin Film Technology at SUNY-Albany, a technology with microelectronics applications. “How SUNY

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148 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES New York state has long been a site for “captive” production of semiconductors for internal use by IBM, which has operated production sites at East Fishkill, NY since the 1960s. Although IBM’s capabilities in microelectronics were typically state of the art, by the 1980s the company recognized that as the costs and risks associated with microelectronics escalated, even a firm with IBM’s resources and scale would be required to rely to an increasing extent on external sources of supply and/or collaborative arrangements to ensure a stable source of state-of-the-art components for its information technology products and systems. IBM was actively involved in a number of industry and public policy initiatives to address the growing technological challenges facing the industry and ensures a stable base of vendors capable of producing the quality and volume of devices the company required. The most important of these initiatives was the 1987 formation of SEMATECH, a U.S.-based, industry- and federally-funded research consortium created to enhance U.S. production quality and competitiveness in semiconductor manufacturing. Box 7-1 SEMATECH SEMATECH originated in 1987 as an R&D consortium intended to halt the erosion of U.S. manufacturing competitiveness in semiconductors, and reflected recommendations by the industry, the Defense Science Board, and key members of Congress and the Reagan administration. It was originally co- funded by industry participants and the Department of Defense at a level of $200 million per year. All of the principal U.S. device makers participated and—in a unique development—committed their top talent to collaborative R&D in the public-private partnership. SEMATECH made major progress in enhancing process technology in areas such as lithography, deposition, plasma etch, and furnace and implant, and also played a key role in sustaining the infrastructure of U.S. tool and materials suppliers. SEMATECH is widely credited with contributing to the U.S. semiconductor industry regaining world market leadership from Japan in the 1990s. Most federal support for SEMATECH ended in 1994, but in a credit to its success, the industry participants have continued to support the consortium—which now includes international members—down to the present day.21 Albany Shocked the Research World and Reaped a Bonanza Worth $850 Million (and Counting),” The Chronicle of Higher Education February 7, 2003. 21 In addition to the technical contributions of SEMATECH, the recovery of the U.S. semiconductor industry also depended on the 1986 Semiconductor Trade Agreement with Japan and the inventiveness and commitment of the U.S. companies in repositioning themselves. The trade agreement prohibited dumping product below cost in both the U.S. and foreign markets. It also contained provisions aimed at increasing the market share in Japan of U.S. producers to counter the closure of that market. The implementation of this agreement was essential, first to the recovery, and then to the growth of the U.S. semiconductor industry. The combination of these factors has been described as a “three-legged stool,” with each factor critical to the industry’s recovery but

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 149 New York’s political leadership has sought to enhance the state’s position in semiconductors since the mid-1980s. New York made a strong, albeit unsuccessful bid to provide the original site for SEMATECH when the consortium was formed in 1987.22 In 1988, Governor Mario Cuomo’s SUNY Graduate Research Initiative supported the establishment of an advanced semiconductor program at the State University of New York (SUNY) at Albany. In 1995, SUNY-Albany launched a major effort to enhance its capabilities in the sciences.23 In the early 2000s IBM and SUNY-Albany cooperated to create the world’s only site of a 300-mm wafer nanoelectronics R&D and prototyping complex.24 The state followed up with large-scale grants to develop research infrastructure for semiconductors, initiatives which were met with a strong matching response from industry and, in some cases, the federal government:  The state provided $85 million of a total public/private commitment of $185 million to create the Center of Excellence in Nanoelectronics and Nanotechnology (CENN) in collaboration with IBM.25  The state committed $100 million to a $300 million-total project with Tokyo Electron Limited at the Albany Center of Excellence to develop semiconductor manufacturing technology.26  The state invested $35 million to support the Interconnect Focus Center for Hyper-Integration, concentrating on nano-scale interconnect likely insufficient on its own. See National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, op. cit., p. 82; Kenneth Flamm and Qifei Wang, “SEMATECH: Revisited: Assessing Consortium Impacts on Semiconductor Industry R&D,” in National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, op. cit., pp. 254-81; Andrew A. Procassini, Competitors in Alliance: Industrial Associations, Global Rivalries, and Business-Government Relations, Westport, CT: Quorum Books, 1995, pp. 194-6; see generally, National Research Council, Rising to the Challenge: U.S. Innovation Policy for the Global Economy, C. Wessner and A. Wm. Wolff eds., Washington, DC: The National Academies Press, 2012, pp. 333-335. 22 New York offered SEMATECH a site at the Rensselaer Technology Park in North Greenbush, New York. “Fall Meeting Planted Seed for Deal,” Albany, The Times Union July 18, 2002. 23 “How SUNY Albany Shocked the Research World and Reaped a Bonanza Worth $850 Million (and Counting),” The Chronicle of Higher Education February 7, 2003. 24 Significantly, the state’s funding of the University of Albany’s nanotechnology enjoyed bipartisan support. Key players were Republican Governor Pataki, Republican Senate Majority Joseph Bruno, and Democrat Assembly Speaker Sheldon Silver. 25 “IBM Executive Shares Vision of High Tech Future,” The Times Union February 23, 2003. IBM “pledged in April 2001 to pay $100 million over three years to help construct the nation’s only university-based facilities that support research in the design and manufacture of ultrathin silicon wafers with a 300-milimeter diameter.” “How SUNY Albany Shocked the Research World and Reaped a Bonanza Worth $850 Million (and Counting),” The Chronicle of Higher Education February 7, 2003. College of Nanoscale Science & Engineering, University of Albany, “Center of Excellence in Nanoelectronics and Nanotechnology (CENN),” 26 “U Albany Lands R&D Center,” The Times Union November 21, 2002.

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150 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES technology, a project co-funded by DARPA and the Microelectronics Advanced Research Corporation (MARCO). The R&D infrastructure for a number of these projects was partially funded by private investments through the Fuller Road Management Corporation, a private not-for-profit corporation created through a partnership between the Research Foundation of the State University of New York and the University at Albany Foundation to manage the nanotechnology facilities.27 Perhaps the region’s biggest coup arose out of the leadership of then- New York governor George Pataki. In September 2001 he met privately with SEMATECH President Robert Helms and made it clear that New York “wanted to be in SEMATECH’s expansion plans.” Pataki and a small team of assistants worked to persuade SEMATECH to open its second research facility in New York. SUNY Albany’s Alain Kaloyeros, who was part of that team, said that “Pataki was intimately involved, keeping the momentum going from that [original] September meeting.”28 The deal, which was announced in mid-2002, provided for a research collaboration between SUNY-Albany and SEMATECH pursuant to which the state contributed $160 million and SEMATECH $40 million to a joint research effort; SEMATECH and SUNY-Albany agreed to contributions of $120 million in in-kind investments (including SEMATECH’s know-how); IBM contributed $100 million in equipment and other resources to the university; and the state contributed another $50 million towards the construction of two semiconductor research laboratories in Albany.29 The arrival of SEMATECH (from Austin Texas) and Tokyo Electron in the 2000-02 period heralded the beginning of a sustained and expanding movement of semiconductor device, equipment and supply chain firms into the Albany area. Both Tokyo Electron and International SEMATECH “were drawn by the university’s construction of a 300-millimeter semiconductor research center, an expensive technology off-limits to all but the largest companies.” Alain Kaloyeros, observed in 2002 that the semiconductor industry was engaged in a “tricky and expensive” transition from making chips on silicon discs 200 millimeters in diameter to 300mm, a move that would ultimately drive down costs dramatically but which entailed an unprecedented level of investments in R&D and plant. Albany’s 300-mm center “gives companies access to equipment owned by a precious few, largely because the cost is so prohibitive.” Through 27 “Sematech Pact with UAlbany is Finalized…Company Officials in Town for Announcement by Pataki,” Schenectady, The Daily Gazette January 28, 2003. 28 “Fall Meeting Planted Seed for Deal,” Albany, The Times Union July 18, 2002. The working group reportedly included Pataki himself, his higher-education aide, Kaloyeros, Hitchcock and about five individuals from SEMATECH. “How SUNY Albany Shocked the Research World and Reaped a Bonanza Worth $850 Million (and Counting),” The Chronicle of Higher Education February 7, 2003. 29 “SEMATECH Touts the Benefits of its New York Alliance,” Austin American-Statesman July 19, 2002.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 151 large scale investments in research facilities that could be made available to companies, the state had “assembled the key parts necessary to form a cluster of nanotechnology companies…They’re coming here because of the university’s investment in 300-millimeter technology.”30 Daniel Armbrust, President and CEO of SEMATECH, comments that We came to Albany because of shared investments. We share the infrastructure that’s been put in here. In Texas we were on our own. At $13 billion and counting, there was no way to do it on our own. R&D costs would have consumed all of our revenue. Most jurisdictions—except New York state and a little bit of federal—have concluded this industry is mature, let’s just let it run.31 Other locational factors favored the Albany region. IBM’s head of technology, John E. Kelly, a driving force behind the emerging nanotechnology cluster, had local roots in the region, having earned a bachelor’s degree from Union College in Schenectady and a masters in physics from Rensselaer Polytechnic Institute in Troy. The company already had a considerable history working with the State University of New York at Albany on a “wide variety of research projects” and had hired numerous graduates from the institution. Kelly cited the company’s advocacy of the Albany site as also deriving from the fact that New York has an “educated, skilled work force” and “political leadership support, especially from Governor Pataki.”32 During and after 2005, new investments by microelectronics companies in the Albany area snowballed. In 2005, ASML, one of the world’s largest makers of semiconductor manufacturing equipment, announced a $325 million investment in Albany. IBM, Advanced Micro Devices, Micron Technology and Infineon joined in a $600 million consortium ($180 million provided by the state) to integrate the technical capabilities of the companies to develop lithography, a project dubbed INVENT. In September 2005, IBM and Applied Materials committed to joint new investments of $300 million in 30 “U Albany Lands R&D Center,” The Times Union, November 21, 2002. “Many researchers and industry officials…praise SUNY Albany officials for their vision and commitment to building highly competitive research facilities. They say it is an unusual approach in higher education, one that focuses on identifying an area of research to pursue and then assembling an aggressive team to win money and equipment to pull in top researchers and key investors.” “How SUNY Albany Shocked the Research World and Reaped a Bonanza Worth $850 Million (and Counting),” The Chronicle of Higher Education February 7, 2003. 31 Presentation by Daniel Armbrust, National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 4, 2013. 32 “IBM Executive Shares Vision of High Tech Future,” The Times Union, February 23 2003. Pataki, a Republican, enjoyed bipartisan support for then-Senator Hillary Clinton, who cosponsored a bill in Congress to provide multiyear funding for nanotechnology research. She noted President Clinton’s launch of the National Nanotechnology Initiative in 2000 and observed in 2002 that “as I recall it was one of the very few things my husband did that Newt Gingrich agreed with.” “Sec. Clinton Wants Research to Result in Jobs for Region,” The Daily Gazette November 21. 2002.

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152 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Box 7-2 The Center for Economic Growth Founded in in 1987, the Center for Economic Growth (CEG) is a private, not-for-profit organization promoting economic development in New York’s 11-county Capital Region.33 It is funded by its industry members as well as Empire State Development’s Division of Science, Technology and Innovation, the National Institute of Standards and Technology (NIST), National Grid, and the federal Manufacturing Extension Partnership (MEP). CEG was set up because the local private sector did not want economic development consigned only to government organizations. CEG works to help the Capital Region compete internationally for investment. In semiconductors, CEG has been instrumental in outreach to tool and material companies whose local presence is necessary to support semiconductor manufacturing operations.34 nanotechnology research in the Albany area.35 AMD announced plans to build a $3.2 billion semiconductor wafer fabrication plant in Saratoga County in 2006, the culmination of over eight years of talks between the company and state economic development officials.36 In 2008, IBM concluded a $1.6 billion deal with New York State that included establishment of a 120,000 square foot, 675- employee, R&D center dedicated to semiconductor packaging technology that would be owned and operated by the College of Nanoscale Science and Engineering (CNSE).37 In 2010, SEMATECH indicated it would move most of its remaining workers from its base in Austin, Texas, to Albany or replace them with new hires.38 The various university-industry research collaborations in microelectronics which emerged after 2000 grew out of necessity—as the former President of the University at Albany, recalls, “we knew that if we went into this field [nanotechnology] we needed partners because of the cost involved. We needed companies to invest in academics, and they did,” she notes, citing the funding of post-doc fellowships and equipment by IBM and other industrial partners. IBM’s “$100 million gift was the big, early investment” and led to the first example of co-location by industry and 33 “New York's Capital Region generally refers to the four counties surrounding Albany, the state capital. 34 Interview with David Rooney, Senior Vice President, CEG, Malta, New York, April 3, 2013. 35 The Daily Gazette. 2006. “U Albany Ready to Organize Itself in Nanotech Research,” February 26. 36 “For Planning Growth, the Future is Now—Changes that AMD Could Bring to the Region Must Be Anticipated, Executive Warns,” The Times Union March 25, 2007 37 “Region Wins $1.6 Billion IBM Pact,” The Times Union July 16, 2008. 38 “Key SEMATECH Program, Jobs Moving to New York,” Austin American-Statesman October 13, 2010.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 153 university researchers at a single site.39 Co-location is necessary because the partners “couldn’t afford it otherwise.” This commitment led to collaboration by individuals involved in basic and applied research, prototyping and commercialization “all in a single site,” which allowed unique “interactions over a coffee cup.” As the collaborations moved ahead, “the Governor kept putting up matching funds. Also, the Assembly, the Senate all came together” to support the effort.40 THE COLLEGE OF NANOSCALE SCIENCE AND ENGINEERING (CNSE) In 2004, the University of Albany launched the College of Nanoscale Science and Engineering (CNSE) to train a specialized nanotechnology work force.41 The governor was reportedly convinced that formation of CNSE would “lead to clustering,” an expectation events proved to be correct. Faculty was drawn from other universities and from companies; in addition, CNSE brought in some scientists (including several from IBM and SEMATECH) who worked on site but did not have teaching assignments.42 By 2007, CNSE had grown from an initial student body of 40 to 120 and had succeeded in recruiting Dr. Ji Ung Lee, a preeminent scientist from GE Global Research specializing in carbon nanotubes, to its faculty. In 2006, Small Times magazine, a trade publication, named CNSE as the “number one college for nanotechnology.”43 In 2007, SEMATECH agreed to house the headquarters of International SEMATECH at CNSE and the college built a $100 million 250,000 square foot facility to accommodate the research consortium.44 In a 2008 presentation, SEMATECH CEO Michael Polcari indicated that while its research in Albany had been largely limited to lithography, “going forward almost all major [SEMATECH] research will be done in Albany, including development of three-dimensional interconnect technology.” He observed that many of the technological advances that SEMATECH members are trying to achieve by making computer chips more powerful and more 39 In 2001, IBM agreed to contribute $100 million to SUNY’s microelectronics program with the state of New York contributing another 50 million. “SUNY Albany gets $150 Million for Development of Microchips,” New York Times April 24, 2011. 40 Interview with Karen Hitchcock, Troy, New York, April 4, 2013. 41 The new College absorbed 25 faculty members and 40 students currently matriculating in the university’s School of Nanosciences and Nanoengineering and was expected to double its faculty size and expand enrollment to 500 graduate students. “U Albany to Have Nanotech College,” The Times Union January 8, 2004. 42 Interview with Karen Hitchcock, Troy, New York, April 4, 2013. 43 “U Albany NanoCollege Tops Rising Star at GE,” The Times Union February 9 2007. 44 “SEMATECH News boon for Albany,” The Times Union October 17, 2007; “SEMATECH Deal Brings Business, High-Tech Jobs,” The Daily Gazette February 24, 2008.

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154 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES TABLE 7-1 Growth of CNSE Facilities Cost (Millions Thousands of Facility of Dollars) Cleanroom Square Feet Completed NanoFab 16.5 4k 70 6/97 200 NanoFab 50 32k 150 3/04 South NanoFab 175 35k 228 12/05 North NanoFab 50 15k 100 3/09 Central NanoFab 100 - 250 3/09 East NanoFab 365 60k 250 12/12 Xtension SOURCE: Presentation by Pradeep Haldar, CNSE Vice President, April 3, 2013. profitable are happening now at the NanoCollege [CNSE]. The NanoCollege has been leading advances in so-called extreme ultraviolet lithography, which uses light of extremely short wavelengths to etch ever-smaller components and circuits on a wafer.45 As of early 2013, CNSE had grown from an initial enrollment of 10 graduate students to over 300 graduate and undergraduate students studying curricula in NanoBioscience, NanoEconomics, NanoEngineering, and NanoScience. It operates 800,000 square feet of facilities space which will be augmented by another 500,000 square feet. A senior manager of silicon technology for IBM characterized CNSE’s facilities as “unparalleled” in the industry, noting that “most computer chip innovations that IBM invents in its labs are tested first on CNSE’s clean room equipment.46 In 2008, the National Institute of Standards and Technology (NIST) announced that it would collaborate with CNSE to establish standard 45 “SEMATECH Boss Touts NanoCollege Research,” The Times Union May 20, 2008. 46 Ibid.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 155 measurements for nanotechnology. CNSE was “not ordinary.” 47 Its lab is considered to be a Switzerland for semiconductors, and the University serves as the neutral intermediary. Researchers from rival for-profit companies like IBM, and GlobalFoundries collaborate in an innovative partnership with the school, without worrying about their technology falling into the competitors’ hands.48 To a significant degree, the evolution of CNSE into what is considered “the nation’s premier research facility for nanotechnology” reflects the vision and persistent efforts of Alain Kaloyeros, who was originally recruited in 1988, after receiving a Ph.D in experimental condensed matter physics from the University of Illinois, under an initiative by Governor Pataki to encourage graduate research at SUNY-Albany. Kaloyeros saw the potential of the location to support innovative research, and “found a partner in IBM to persuade private- sector technology companies to move in and spend hundreds of millions of dollars to outfit new quarters at the site with matching state funds.” Kaloyeros has played a catalytic role, proving “adept at navigating Albany politics, befriending aides to leaders and the leaders themselves, and touting how his project would be good for business, the economy, for New York.” Key political figures whose support was secured over time include Senate Majority Leader Joseph L. Bruno and U.S. Senator Chuck Schumer. 49 At present Kaloyeros serves as CEO and Senior Vice President of CNSE. RENSSELAER POLYTECHNIC INSTITUTE In addition to CNSE, semiconductor and other high tech companies locating in the Albany area have benefitted from the presence of the nation’s oldest technical university, Rensselaer Polytechnic Institute (RPI) in nearby Troy, New York.50 RPI’s President, Shirley Ann Jackson, emphasizes that the institution’s core mission is the preparation of students for careers in the sciences and engineering. Reflecting RPI’s preeminence in this role, GlobalFoundries, currently the largest local semiconductor manufacturer, recruits more of its workforce from RPI than anywhere else.51 RPI is engaged in research partnerships with local firms such as IBM, GE and GlobalFoundries. 47 “NanoCollege Welcomes New Gov’t Partnership,” The Daily Gazette April 22, 2008; The Record“Feds UAlbany form Partnership for Nano Research” April 22, 2008. 48 “High Tech Companies Team Up on Chip Research,” Wall Street Journal August 27, 2012. 49 “It’s About Achievement,” Albany, The Times Union July 8, 2012. “Alain Kaloyeros: Nano Czar Studies Paranoia, Crazy Bosses,” The Times Union September 29, 2010. 50 Rensselaer Polytechnic Institute was founded in 1824 by Stephen Van Rensselaer and Amos Eaton for the "application of science to the common purposes of life" and is the oldest technological university in the English-speaking world. 51 Keynote Address by Shirley Ann Jackson, President, RPI, National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” April 4, 2013.

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156 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES RPI’s Center for Automation Technologies and Systems (CATS) is a state- funded research center involving nearly fifty faculty members, nine departments and a five person research staff with core competencies which include advanced manufacturing, modeling and control, and vision and sensing. CATS works with partner companies to solve specific manufacturing challenges. Most of its industrial partners are small companies or startups. GLOBALFOUNDRIES In 2009, AMD concluded a deal with an investment fund owned by the government of Abu Dhabi, Advanced Technology Investment Co. (ATIC), pursuant to which AMD would transfer its manufacturing operations to the investment fund in phases through the creation of a new entity, GlobalFoundries. GlobalFoundries would operate as a pure play foundry and AMD would continue as a “fabless” semiconductor producer, using GlobalFoundries to manufacture the microprocessors and other chips it designed.52 In 2009, GlobalFoundries disclosed plans for a state-of-the-art semiconductor wafer fabrication facility to be built at the Luther Forest Technology Campus in Malta, NY, about 25 miles from Albany, at an estimated cost of $4.2 billion. The State of New York reportedly pledged $1.2 billion in incentives to support the project, despite “crushing budget problems.”53 It would become the largest public-private partnership in the history of the state and perhaps the country.54 For the most part, the state’s large scale financial commitment to this enterprise has had no federal counterpart.55 GlobalFoundries’ choice of location was influenced by a number of factors. The new fab would initially feature 28-nanometer design rules, scaling down to 14-nanometers, at a time when the semiconductor industry was transitioning to 32-nanometer technology. U.S. export control rules and the Wassenaar Arrangement, a multilateral agreement between the U.S. and its allies, limit the geographies in which the most advanced microprocessor manufacturing technologies can be deployed, foreclosing, for example, sites in 52 “GlobalFoundries Puts Its Chips on the Table,” The Times Union May 1, 2009. A “pure play foundry” does not produce semiconductors for sale under its own brand. It provides manufacturing services in return for a fee for other semiconductor manufacturers. The first and largest pure play foundry is Taiwan Semiconductor Manufacturing Corporation (TSMC). A fabless semiconductor company separates the design of its chips from manufacturing, with its capital intensive requirements. 53 “More State Funding for Global Foundries,” The Times Union June 24 2009. AMD had originally announced plans for a new fab in 2006 at a cost of $3.2 billion. Ibid. 54 “GlobalFoundries Chip Plant Fosters a Ripple Effect Felt Far and Wide,” The Saratogian July 24, 2012. 55 “There hasn’t been much federal investment in GlobalFoundries. The infrastructure here has all been New York state. There has been no federal money, no foundation money. It’s all state money.” Interview with Mike Russo, Director of Government Relations, GlobalFoundries, Malta, New York, April 3, 2013.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 157 Box 7-3 The Case for Onshore Semiconductor Manufacturing During the past two decades, semiconductor manufacturing operations have been characterized by movement offshore from what are regarded as relatively high cost geographies in North America, Japan and Europe, to lower costs regions, particularly East Asia. While this movement has been viewed as inevitable given the economic pressures confronting individual producers, countervailing forces working in favor of retention and even expansion of onshore manufacturing capability in this industry are increasingly evident. The defense community has long expressed concerns over the implications raised by the manufacture of components which form the core of key defense systems outside the U.S., particularly in venues like China.56 A 1999 earthquake in Taiwan, where many U.S. firms’ chips were being fabricated, and the 2011 Fukushima earthquake and tsunami in Japan, drove home the risks associated with overconcentration of semiconductor production in the Pacific Rim “ring of fire.”57 Added to these risk factors favoring diversification to more stable and secure sources of supply is the abiding reality that “customers like to do business in their own neighborhood.”58 China. New York’s education system compared favorably to those of other states. New York’s geology offered a stable foundation for wafer fabrication.59 The region around Albany was already the home of GlobalFoundries’ research partners, the University at Albany’s CNSE as well as Rensselaer Polytechnic Institute and IBM. And “perhaps most crucially,” the state of New York put forward a major incentives package. An investment analyst commented that It’s kind of like competing for baseball stadiums these days. Cities around the world, regions around the world, are competing for all 56 Report of the Defense Science Board Task Force on Secure Microchip Supply, February 2005. The Task Force expressed concern that chips fabricated offshore could be implanted with “Trojan Horses” and other unauthorized design features that could compromise U.S. defense systems incorporating such devices. The Task Force was also concerned about dependency on foreign production sources that could be compromised in a national emergency. Ibid, pp. 22-24. 57 “Quake Disrupts Taiwan Chip Mfg.: Implications for China Relations,” China Online September 22, 1999; “Japan Earthquake Impact on Semiconductor Industry,” Digitimes March 15, 2011. 58 Interview with Mike Russo, Director of Government Relations, GlobalFoundries, Malta, New York, April 3, 2013. 59 Presentation by Mike Russo, Director of Government Affairs, GlobalFoundries, National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy.” Troy, New York, April 4, 2013.

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158 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES sorts of manufacturing activity, and semiconductors are high-tech, high human capital, and high-wage.60 In 2012, ATIC pledged $1.8 billion to support the acquisition by GlobalFoundries of Singapore-based Chartered Semiconductor Manufacturing, Ltd., which made GlobalFoundries the world’s number two pure play foundry, trailing only Taiwan’s TSMC.61 The Malta fab, currently known as “Fab 8”, became operational in 2012 as ATIC acquired full control of GlobalFoundries.62 In January 2013, GlobalFoundries announced that it would invest another $2 billion to establish a new global R&D facility in Malta, for which it did not seek state incentives. Governor Andrew Cuomo issued a statement to the effect that GlobalFoundries’ decision validated the state’s sustained commitment to nanotechnology: This significant expansion demonstrates that the investments we have made in nanotechnology research across New York state are producing the intended return — the creation of high-paying jobs and generation of economic growth that is essential to rebuilding our state. New York has become the world’s hub for advanced semiconductor research, and now the Technology Development Center will further help ensure the innovations developed in New York, in collaboration with our research institutions, are manufactured in New York.63 As of early 2013, GlobalFoundries was the site of the world’s most advanced wafer fab, Fab 8, the culmination of $8.5 billion in investments, which will have a capacity of 60,000 300mm wafer starts per month when fully ramped up. GlobalFoundries is “making 14nm chips today,” involving the most sophisticated design rules employed in the industry to date.64 The $2.2 billion Technology Development Center will literally be located “right next to the fab,” which offers the real time advantages. This means that the same engineers that operate the fab can participate in R&D and “collaboratively discuss challenges—there is no substitute for right next door.” Although GlobalFoundries’ future plans are uncertain, it is contemplating building one or 60 “AMD Spinoff Setting Up Shop in NY—State Incentives, Desire for U.S. Plant Help Lure Local Foundries,” San Jose Mercury News July 24, 2009. 61 The Times Union, “Deal Puts Fab 2 in the Chips,” January 21; “GlobalFoundries Says Customers Now Using its 28nm Technology,” Taipei Times Online September 15, 2011. 62 “GlobalFoundries has started Production,” The Saratogian January 14, 2012; “Abu Dhabi Gets Full Ownership of GlobalFoundries,” The Daily Gazette March 6, 2012. Fab 8 produces 300mm wafers using 28 nm and below design rules at a maximum capacity rate of 60,000 wafers/month, or the equivalent of 135,000 200mm wafers/month. 63 “GlobalFoundries to Invest $2 Billion in New Malta Research and Development Facility,” The Saratogian January 8, 2013. 64 Ajit Manocha, “Keynote Address,” National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 3, 2013.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 159 two more fabs on the same site, each 50 percent larger than the current Fab 8, which would entail approximately $30 billion in additional investments.65 GlobalFoundries has had significant effects on the economic development of the surrounding region. Like the advent of an anchor tenant in a shopping center, the arrival of GlobalFoundries has prompted a build-out of infrastructure (power grid, water supply, roads, sewers) that are now available to other companies. Together with CEG, GlobalFoundries has launched the Tech Valley Connection for Education and Jobs, a model for transforming K-12 and higher education, which is the largest education/workforce development initiative of its kind in the United States. The company’s presence has led over 200 other companies to locate or expand their presence in the region, and GlobalFoundries expects its own investments may create as many as 15,000 indirect support jobs by the end of 2014.66 THE GLOBAL 450 CONSORTIUM In September 2011 Governor Andrew Cuomo announced that New York state had entered into agreements with IBM, GlobalFoundries, Samsung, Intel and TSMC to develop the next generation of semiconductor technology based on 450mm wafer size at a site in upstate New York. The state committed to invest $400 million in CNSE, with no state funds going to any individual company. The five member firms pledged investments of $4 billion, and Intel agreed to establish a 450mm East Coast Headquarters to support the project. Global 450 is comprised of two projects:  IBM and its technology partners will focus on developing and producing the next two generations of semiconductor devices.  The five participating companies will focus on the technological transition from 300mm to 450mm wafer size. Global 450 was expected to facilitate the establishment of 450mm wafer fabrication plants in New York state at investment costs exceeding $10 billion per plant. Global 450 was also forecast to create 2500 new high technology jobs in upstate New York. The project was also expected to provide 1500 construction jobs in Albany.67 Perhaps as important, as a result of the “New York state decision on a 65 Interview with Mike Russo, Director of Government Affairs, GlobalFoundries. Malta, New York, April 3, 2013. 66 Presentation by Mike Russo, Director of Government Affairs, GlobalFoundries, National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy.” Troy, New York, April 4, 2013. 67 Presentation by Pradeep Haldar, CNSE Vice President, Troy, New York, April 3, 2013; “Governor Cuomo Announces $4.4 Billion Investment by International Technology Group Led by Intel and

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160 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES TABLE 7-2 Global 450 Employment Forecast Location New Positions CNSE Albany 800 IBM—Yorktown/East Fishkill 950 SUNY Utica 450 CNSE Canandaigua 300 $400 million investment,” the research and development for the transition from 300mm to 450mm “will be done in right here in Albany, not overseas.”68 To date, the state of New York has invested over $2 billion in the development of the Albany nanotechnology cluster, funds that have been skillfully leveraged to induce far higher levels of private investment.69 Technology companies have moved to the Albany area based on their “opinion of where the future of nanotechnology was located.”70 The investments in nanotechnology are transforming the Albany area’s economy. Two thousand, five hundred jobs were created at the SUNY at Albany alone and the nanotechnology R&D activity has fostered an “ecosystem” of support firms providing materials, tools and specialized services. GlobalFoundries employed 2,000 people at its hub in Malta in early 2013 and expected to grow by another 1,000 by the end of 2014.71 The flow of highly educated people into the region has produced a “brain gain” and the Albany region now ranks eighth in the U.S. in share of population with a graduate degree.72 “The revitalization of downtown Schenectady, Albany, and Troy is driven by the economic activity that has resulted” from the nanotechnology initiative, observed a local economic development official in 2009. “There is a buzz going on that enables us to sustain a level of economic stability in a time of tremendous crisis.”73 President Obama visited Albany in 2012 and commented that “I want what’s happening in Albany to happen in the rest of the country.”74 IBM to Develop Next Generation Computer Chip Technology in New York,” Press Release, Andrew M. Cuomo, Governor, September 27, 2011. 68 Interview with David Rooney, Senior Vice President, Center for Economic Growth, Malta, New York, April 3, 2013. 69 Pradeep Haldar, “New York States Nano Initiative,” in National Research Council, Growing Innovation Clusters for American Prosperity: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2011, p. 62. According to one source, $13 billion had been invested in Albany nanotechnology activities by a total of 300 companies by 2012. It is unclear whether some or all of GlobalFoundries investments are included in that total. “Nanotech Makes U.S. Job Creation Special,” The Times Union September 19, 2012. 70 “GlobalFoundries Constructor Moving HQ from Albany to Wateruliet,” The Saratogian February 9, 2010. 71 “GlobalFoundries Plans New York R&D Center,” EETimes January 9, 2013. 72 “Jobs Bring Brain Gain,” The Times Union June 1, 2012. 73 “Nano Center a Job Magnet for Albany,” Observer-Dispatch July 19, 2009. 74 “Nanotech Makes U.S. Job Creation Special,” The Times Union September 19, 2012.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 161 Box 7-4 The Role of Community Colleges New York’s community colleges enroll some 270,000 students. In addition to preparing many of these students to move on to 4-year institutions, the community colleges provide skills training relevant to the economic needs of the regions in which they are located.75 The Hudson Valley Community College (HVCC), for example, offers a 25-credit semiconductor technology certificate program providing specialized knowledge of semiconductor and nanotechnology necessary to qualify for entry level positions in the semiconductor industry. Most of these courses are taught at HVCC’s TEC- SMART facility (Training and Education Center for Semiconductor Manufacturing and Alternative and Renewable Technologies) in Malta, where GlobalFoundries’ manufacturing operations are located. Many of the students enrolled in this program are in their late 20s and 30s, seeking to “reinvent themselves,” and some are over 40.76 In 2012 GlobalFoundries’ staffing manager for Fab 8, Pedro Gonzalez, said in an interview that about 65 percent of the company’s hires were “technicians” directly involved in the manufacturing process, and that roughly 50 percent of total hires come from within the region. He observed that “the local community colleges, such as HVCC, provide a great associate degree program in semiconductor manufacturing.”77 START-UPS New York’s burgeoning nanotechnology cluster is virtually entirely comprised of the operations of large established companies which were indigenous to the state (IBM) or recruited (GlobalFoundries, Tokyo Electron, SEMATECH) and their established supply chain companies. There is no readily apparent New York equivalent of Intel or Google which grew from a local start- up venture to a successful established company. The first student spin-off from CNSE did not occur until 2012, eight years after the establishment of the NanoCollege.78 While the dearth of start-ups in the midst of a high tech boom is worthy of separate study, New York policymakers are concerned about the fact that “New York lags behind other states in attracting venture capital.” While 75 Presentation by Drew Matonak, President, Hudson Valley Community College, National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 4, 2013. 76 “Training Technicians, Hudson Valley Style,” Semiconductor Design and Manufacturing May 3, 2012. 77 “Talking About Fab 8’s Work Force,” Albany, The Times Union September 9, 2012. 78 CNSE, “UAlbany NanoCollege Enters Into Licensing Agreement with its First Student Spin-off Company to Spur Green Energy Innovation and Growth,” press release, October 1, 2012.

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162 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES nearly half of all U.S. venture capital is invested in California, “New York companies only attract 4 percent of the total.” To address this shortfall, Governor Andrew Cuomo has proposed the NYS Innovation Venture Capital Fund to encourage start-ups. In addition, the Governor has proposed creating the Innovation NY Network, a networking initiative which will convene academics, venture capitalists, patent lawyers and business leaders to promote technology transfer from universities and investment in start-ups, based on the example set by Stanford and MIT.79 NANO BEYOND MICROELECTRONICS To date, most of the commercial activity associated with nanotechnology in upstate New York has involved semiconductors. However, the state’s involvement in nanotechnology envisions a much broader application of the emerging technology. Alain Kaloyeros commented in 2007 that “the computer chip is leading the way, but I include nanobiology and nanomedicine, and health applications, along with renewable and sustainable energy, as some of the leading emerging applications.”80 A number of initiatives are under way in upstate New York to broaden the applications of nanotechnology to new fields. The Photovoltaic Manufacturing Consortium, in which CNSE and SEMATECH are key partners, supports R&D to develop next-generation photovoltaic manufacturing technologies.81 RPI’s Vice President for Research, Jonathan Dordick, advocates extension of New York’s “nanotech model” to a wide range of biotechnology applications, including pathogen decontamination, drug discovery, toxicology screening, and sensor-based healthcare.82 In addition, as Brian Toohey, President of the Semiconductor Industry Association (and former Senior Vice President of the Pharmaceutical Research and Manufacturers of America) points out, semiconductor technology itself has widespread 79 “Stanford University and the Massachusetts Institute of Technology have perfected this practice— known as tech transfer. It is commonplace for top scientists at these schools and their students to form their own companies based on their discoveries that attract tens of millions of dollars in venture funding. The schools, which share in the profits, put enormous resources behind these commercialization efforts.” “Cuomo’s $50M Venture Fund Seeds Startups,” Albany, The Times Union January 23, 2013. 80 “Interview with Dr. Alain Kaloyeros,” Innovate November 2007. 81 The Photovoltaic Manufacturing Consortium involves a total investment to date of $300 million from the U.S. Department of Energy, New York state, and the private sector. Presentation by Pradeep Haldar, CNSE Vice President, National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 3, 2013. 82 Presentation by Jonathan S. Dordick, “Advancing Nano-Biotechnology,” National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 4, 2013.

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THE NEW YORK NANOTECHNOLOGY INITIATIVE 163 application in the life sciences areas, including electronic implants in the human body, biometric monitoring, and synthetic biology.83 SEMICONDUCTORS: THE ON-GOING CHALLENGE FROM ABROAD A combination of enlightened public policy measures and committed industry initiatives appears to be producing a success story for the U.S. semiconductor industry in New York, including the opportunity for leadership in the transition from 300mm to 450mm technology and a partial reversal in the offshore movement of semiconductor manufacturing. However, the industry continues to confront stark technological and competitive challenges exacerbated by persistent efforts by foreign governments to capture leadership in this most strategic of all industries. Recently, for example, India launched its Modified Special Incentive Package Scheme (M-SIPS), offering $4 billion in incentives to companies that set up local facilities to manufacture computer chips, photovoltaic solar cells, and telecommunications equipment.84 Without continued sustained investments in R&D and seamless collaboration between industry, universities and the state government, the gains achieved to date could easily prove ephemeral. The nanotechnology initiative’s economic impact on upstate New York should also not obscure the region’s abiding economic problems. Nanotechnology is bringing thousands of jobs to the region as well as new companies and advanced technologies. But in January 2013 unemployment in the Capital region was 8.4 percent and rising, the highest figure for any month since figures were collected starting in 1990. Unemployment levels are even higher in Syracuse, Glens Falls, Buffalo, and Binghamton.85 These figures indicate that despite the extraordinary achievements of the past decade, more needs to be done. This would include a redoubled commitment to education and training at both university and community college levels, as well as steps to encourage public and private investments in innovation, and measures to encourage investments in start-ups.86 Perhaps most of all, the political consensus that has underpinned the region’s success and the public-private partnerships that have made it possible will need to be sustained and expanded as opportunities occur. Above all, policymakers at the regional, state, and 83 Brian Toohey, “Convergence: Semiconductor, Pharmaceutical, and Medical Device Industries,” National Research Council symposium, “New York’s Nanotechnology Model: Building the Innovation Economy,” Troy, New York, April 4, 2013. 84 “India to Offer Incentives Worth $4 Billion for IT Manufacturing,” The Times of India January 12, 2013. 85 “Area Jobless Rate Rises,” Albany, The Times Union March 13, 2013. 86 For example, the region may not be concentrating sufficient resources or drawing sufficient attention among its firms and universities to the federal SBIR/STTR programs that provide some $2.8 billion in grants and contracts annually.

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164 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES national level need to recognize the intensely competitive global environment for the design, production, and application of semiconductors. LESSONS LEARNED The New York nanotechnology initiative is an example of state-level industrial policy on a scale comparable to that observable on a national level outside the U.S. In this case, however, the driving force was not a government ministry but the SUNY university system and the flagship SUNY Albany. Through investments in SUNY Albany, the state of New York leveraged far more substantial private financial investments, facilitating the establishment of an enormously expensive, state-of-the-art research infrastructure at the university with a powerful gravitational pull on leading semiconductor devices, equipment, and service infrastructural companies. In little over a decade a semiconductor industry supply chain has been assembled in upstate New York, which is poised to lead the global industry into a new era based on 450mm wafer technology. While many actors played important roles in this effort, including government and industry leaders, regional development organizations, and private firms such as IBM and GlobalFoundries, the initial catalyst was arguably the university itself. Few would argue that New York’s nanotechnology development model has widespread applicability elsewhere. Most states cannot afford investments on a comparable scale, and New York may be unable or unwilling to do so itself going forward. However, some aspects of the New York experience are noteworthy and relevant to other states and regions:  New York’s commitment to this effort was focused, substantial, and sustained by a bipartisan consensus through successive state administrations.  While state incentives were provided, much of the state money was invested in a build-out of university research infrastructure that attracted private investment. State investments were matched by private sector investments through a cohesive, well-run public-private partnership.  The state’s educational system attracted not only high technology companies but key individuals, able to provide high level research and institutional leadership.  The thematic era in which the largest initial investments were made (microelectronics) is a large, developed market. These investments now permit SUNY Albany to leverage its success into more nascent technology areas such as biomedicine and energy that hold great promise.