Virginia Chip Manufacturers Grease Their Gears

The state is adding a high-tech manufacturing component using tax incentives and performance-based contracts

In about a month, Manassas, Va.-based Dominion Semiconductor will install the first set of tools that will churn out 64-megabit DRAM memory chips to be embedded in millions of PCs, laptops and notebooks.

This first wave of tool installations represents a major milestone since the $1.6 billion joint IBM-Toshiba manufacturing project broke ground last November. It also serves as yet another reminder of the directions Washington's technology community is heading as the area continues to diversify from government contract work toward a more commercial and consumer focus.

Indeed, a growing chorus of regional development voices are saying that high-tech manufacturing is exactly the type of sophisticated and clean economic activity that is right for the well-educated work force that lives in a community suspicious of projects that interfere with its suburban character.

Consequently, various associations and community groups in Virginia have been actively courting this specific sector with some apparent success. Besides the Dominion project, similar projects involving Motorola Inc. and Siemens are underway in Richmond.

"High-tech manufacturing has been the missing component in the Washington area's high-tech scenario," says Roger Snyder, director of community development with the city of Manassas.

"This development comes despite the fact that the Washington area has not traditionally been considered a place that supports manufacturing. People have said the cost of living is too high, that the wage rate is too high, that housing is too expensive and so on," he says.

While these issues may be barriers for traditional manufacturing operations, they are not insurmountable problems for high-tech.

"The fact that this type of plant is coming to the Washington area shows how the manufacturing paradigm is shifting," says Kurt Foreman, director of business development with the Greater Washington Initiative, a D.C.-based economic development group. It also shows how Northern Virginia and Washington are diversifying, he says.

How Manassas got the nod from IBM and Toshiba is the result of an outreach strategy to woo more similar operations.

Starting with the Dominion project was fortuitous, because Manassas was dealing with an old friend in IBM, area executives said.

In fact, according to Dominion spokesman Mark Holcomb, Big Blue still owned property on the current plant site from when it operated IBM Federal Systems. (IBM sold the unit to Loral Corp., which in turn was acquired by Lockheed Martin Corp.).

"That certainly gave Manassas a leg up. But an awful lot of the reason why we decided to locate the venture there has to do with the effort by the Commonwealth of Virginia and especially Northern Virginia to create an appropriate climate for this type of economic development," Holcomb says.

"There are lots of states that would like to have high-tech ventures located in their geography. But a handful of factors clinched it for Manassas," he says. They included the high quality of the area's existing infrastructure; the right demographics for fielding and attracting the right kind of work force; and last but not least, state and local authorities who were ready to do business where it mattered most: taxes.

"There was a clear realization on the part of the region that most of these ventures pay off over time in terms of expanded tax base, jobs and downstream spending," says Holcomb. "But they also realized that for the venture itself there are a lot of front-end costs that do not immediately get recovered. The economic incentive package that the state of Virginia put together for the Dominion project is all performance-based. It addresses the front-end costs by providing tax incentives where we need them most -- during the start-up period. But it is also linked to job creation, construction, investment and real impact on the community."

Although Holcomb would not discuss specifics, he says talks are under way with several educational institutions to develop curricula and training programs that are oriented toward high-tech manufacturing.

"It will provide the wherewithal for us to deepen the work pool by focusing on education and training in the region," he says. Announcements of actual initiatives are expected to be made over the next few months.

And if Northern Virginia stays the course, he expects to see other companies enter the region. "The environment that drew us here will almost certainly draw others," he says.

In fact, other companies are beginning to enter into the region.

"Manassas is already experiencing suppliers and related companies that are locating in Prince William County and the surrounding area," says April Young, director of Potomac KnowledgeWay, a non-profit company dedicated to developing the netpreneur -- companies that sell or use strategic networking -- as a driving economic force in the region.

"The immediate impact will largely be a function of suppliers who need to provide the unique things those plants need. [It] changes the region's reputation from being a high-tech services area to opening the door to being a high-tech manufacturing center," she says.

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