First published: Sunday, December 30, 2007
Nobody likes to be a skunk at the garden party, but the Dec. 23 Perspective story, "Waiting for AMD" did the right thing in preparing the Capital Region for the likely cancellation of the AMD chip-fab plant project. Notwithstanding the state's expenditure of more than $150 million on infrastructure and the promise of $1 billion more in aid (an absurdly expensive and ineffective approach to economic development), it is clear now that AMD is stringing New York along.
AMD is a company beset by major problems. In the last three quarters it lost $1.6 billion -- and it's not clear when it will return to profitability. The acquisition of graphics-chip maker ATI for $5.4 billion was a costly mistake that saddled the company with massive debt and restructuring charges. It is about to borrow $2 billion more, at the same time that profit margins are being squeezed by competition with Intel, and its stock is down 44 percent this year to date.
With AMD's reported operating loss of $226 million in the third quarter, and a net loss of $396 million, AMD is even scaling back plans to convert older facilities in Germany to newer chip-making equipment, a much less expensive proposition than building new fabs.
The worst news for New York is that AMD responded to its problems with a new strategy called "asset-light" manufacturing, meaning that it will outsource more of its chip fabrication to third-party manufacturers.
Given how central this "asset-light" strategy is to restoring the company's finances and the confidence of investors on Wall Street, is it realistic to bank on AMD building a very costly new chip-fab plant in New York? The answer is no -- particularly now that CEO Hector Ruiz (who approved the project) has announced that he will be leaving the company.
If New York had a normal business climate, with average costs of doing business and average taxes, a company in financial difficulties might take advantage of the offer of $1 billion in state aid. But in the last 10 years we've done almost nothing to slow what are now the highest costs of doing business in the nation.
Instead we've banked on an approach that requires politicians and bureaucrats to guess which industries have the best growth prospects, and which companies within those industries are the strongest, and cajole them to build here with the promise of huge infusions of state money. This is a fool's game that can't succeed. It is unfair to businesses already here, and does nothing to help New York.
MARK ALESSE Delmar The writer was a lobbyist for small busi ars, and worked in the Assembly and Senate on economic development.
http://www.timesunion.com/AspStories/story.asp?storyID=650977&category=OPINION&newsdate=12/30/2007
