Semiconductor giant NXP, city of Austin to negotiate potential incentive agreement

NXP Semiconductors already operates two chip fabrication facilities in Austin.
Mark Matson/Special To American-Statesman

Austin American-Statesman
Kara Carlson, Austin American-Statesman
September 12, 2023

Semiconductor giant NXP is looking to modernize its Austin facilities, with the help of a potential incentive agreement from the city of Austin worth just over $1 million.

According to documents posted on speakupaustin.org, NXP is considering a $290.8 million project dubbed “Project Live Oak" that would include retooling manufacturing lines at its two existing Austin fabrication facilities.

To help fund its proposed updates, the company is pursuing a Chapter 380 agreement with the city of Austin that could include property tax reimbursement worth as much as $1.026 million over five years, according to city documents.

NXP, which is based in the Netherlands, has about 2,600 employees in Central Texas at two locations. It has 1,600 employees at its W. William Cannon property in Oak Hill, and 1,062 employees at its Ed Bluestein property in East Austin. The company first entered the Austin market in 2016, as part of an acquisition of Austin-based Freescale Semiconductor in a cash and stocker merger worth more than $11 billion.

Details on the project were posted Friday evening as part of public comment period which opened Sept. 8 and runs through Sept. 15 at 5 p.m. The documents followed a memo from the city of Austin last week that showed the city aims to start negotiations with the semiconductor company over a potential deal. During its Aug. 31 meeting, the Austin City Council set a public hearing for Sept. 14 to start negotiations. The deal is expected to go to vote during the Sept. 21 Austin City Council meeting.

The deal has already gained support from both the Austin Chamber of Commerce and Opportunity Austin, an economic development organization with partnerships throughout the region. The organizations also urged residents and stakeholders to leave comments with city council members in support of the project.

The negotiations mark the second time in recent years the semiconductor giant has pursued incentives to update its Austin facilities.

Last year, the Austin Independent School District's board rejected the company for a separate type of incentive agreement under the now-expired Chapter 313 incentive program. The company sought $140.5 million in savings on school district taxes for 10 years, according to an incentive application at the time.

The company was looking to grow in Austin with a proposed project to potentially build a new semiconductor wafer plant, as well as additional buildings and infrastructure alongside existing chip fabrication plants at 3501 and 2949 Ed Bluestein Blvd., according to the application. The project would have added 350 jobs, according to NXP, and the incentive deal was necessary for expansion.

What is NXP proposing now?

The company's latest project proposal adds fewer jobs than its previous expansion plans called for. In documents posted by the city, NXP said that four out of five product lines are producing “antiquated technology”, production capacity has trended downward, and the machines could eventually become obsolete.

The company said the facility could eventually be decommissioned unless product lines are able to be updated. NXP plans to spend $148.6 million on its William Cannon campus, and $142.2 million on its Ed Bluestein campus to retrofit production equipment and expand production.

With the upgrades the company said it would retain 53 jobs that would otherwise be cut. In the documents, the company noted that without federal and local funding for the project, NXP could locate the project outside of the U.S. instead.

Under the proposed deal with the city, NXP would be eligible to be reimbursed by the city for up to 65% of property taxes in a five-year period, according to city documents. This could include a base award, 40% of the property taxes in that period, estimated to be about $631,589, as part of the deal.

The company could also see additional reimbursement if it creates an employee transition and job training program, and if it hires economically disadvantaged employees. Both incentives would be worth an estimated $157,897 each. Finally, NXP could also receive an estimated $78,949 property tax reimbursement if it meets certain sustainable business practices.

Chapter 380 agreements are designed to encourage economic development for projects such as large commercial or retail developments by offering grants or loans in the form of city funds or services. Companies who receive these agreements typically meet certain job creation and wage criteria or have project that include large capital investment.

Similar agreements have been granted to high profile projects in Central Texas in recent years including Samsung's $17 billion manufacturing facility in Taylor, a massive film studio project in San Marcos and solar roof manufacturer GAF Energy's facility in Georgetown.

Performance incentives, detailed

If a deal is met, NXP would have to meet certain requirements including adding ten new full-time jobs by the end of 2025 and adding 53 in total by the end of 2026.

At least 42 of these jobs have to employ Austin residents, and the new jobs also have to follow the city living wage of $20 an hour and follow subsequent increases including the bump to $20.80 in October. 

If NXP fails to meet job creation targets by certain deadlines it could forfeit Chapter 380 payments for that year.

NXP also has to retain at least 2,769 full-time jobs for the duration of the deal.

The company also has other obligations related to improvements at each facility, talent development, partnerships with local schools, diversity, inclusion and equity, training programs for underserved communities, local partnerships, and sustainability.

NXP also hopes to see boost from federal CHIPS Act

The negotiations come amid what is expected to be unprecedented national investment in the semiconductor industry after the Chips and Science Act was passed last year. The legislation grants more than $52 billion in funding for companies that manufacture computer chips, billions more in tax credits to encourage investment, and tens of billions of dollars to fund scientific research and to encourage other technology development in the U.S.

While companies are still waiting to hear if their projects will receive funding, the Austin-area's already significant semiconductor industry is expected to see a boost from the legislation. Semiconductor manufacturing, by companies including Samsung, NXP, Applied Material and Infineon, already make up about a quarter of all manufacturing output in the region, according to the Austin Regional Manufacturers Association, a number expected to grow.

On a state level, Texas has also been moving to support the semiconductor industry, including passing its own state level "CHIPS Act," which was signed into law earlier this year, which creates a state fund and a consortium with representatives from Texas higher education institutions.

The federal CHIPS funding requires a match from local or state incentive programs, such as the Chapter 380 program. Many companies also pursued funding last year through the now-expired Chapter 313 program, which saw a record number of project application last year.

In a statement, NXP said it was pursuing the Chapter 380 agreement so it could qualify for federal CHIPS funding.

"NXP’s pursuit of this investment incentive is critical in order to leverage the bipartisan CHIPS for America Act, which will provide funding for semiconductor manufacturers of all kinds to expand chip capacity in the United States," the company said. "We are proposing a considerable near-term investment at our Austin manufacturing sites, conditioned on the receipt of incentives, with more details to come with time."

The city documents estimated NXP could see $14.54 million in CHIPS funding, for a total of $15.57 million in city and federal funding.

Central Texas already expected to see semiconductor industry growth

NXP's latest push for a potential incentive agreement comes as the Central Texas region is expected to see big expansions to its manufacturing capacity. Applied Materials and Infineon have considered their own expansions in recent years, and in May, Toppan Photomasks, which makes a key component for semiconductor manufacturing, received a $1.25 million incentive package from the City of Round Rock and announced it was growing its Central Texas facility.

Samsung, which already had two fabrication facilities in Austin, announced last year that it planned to build a $17 billion chip factory in Taylor. Filings also show the company could put as many as 11 additional fabrication facilities in Central Texas in the coming decades, though the company has said it does not have concrete plans.

In recent weeks, Samsung also announced a partnership with the University of Texas to grow the semiconductor workforce pipeline. The company also donated $3.7 million to UT to help boost these efforts, with funding expected to go towards scholarships, research and development and updates to the schools Fab Lab. the company also announced on Wednesday that it invested $1 million to grow Texas A&M's semiconductor ecosystem and pipeline as well.