California’s power crisis could convince chip makers and other fast-growing technology companies that further expansion in Orange County isn’t worth it, according to local executives.
For now, the sting of higher energy bills and the threat of rolling blackouts are making it more difficult to do business here, tech executives say. But a prolonged crisis and uncertainty about future electricity supply stand to make other states a better choice for expansion, they say. “Cost of power determines where you put jobs,” said Dave Sonksen, executive vice president and chief financial officer at Santa Ana-based Microsemi Corp. “The cost of power is a cause for us.”
Microsemi, which makes chips for computers, wireless phones, networking gear and other products, employs 650 people in OC and is expected to add 50 more jobs in the next year or so. Irvine-based Newport Corp., a maker of production gear for chips and fiber-optic components that is adding up to 100,000 square feet of new production space, is concerned about the effect an extended power crisis could have on production. “What do you do with 500 people when the lights go out?” said Chief Executive Robert Deuster. “If the situation persists, we’d look at expanding outside of California.”
The power crisis also could spoil OC’s allure for technology companies looking to set up operations here. Toronto-based Celestica Inc., a top contract electronics manufacturer, recently expanded its Foothill Ranch plant and plans to hire as many as 150 people this year. The company currently employs 400 people in more than 300,000 square feet of space in OC.
“Sure, we are impacted by the crisis,” said Ben Swenson, general manager of Celestica’s Foothill Ranch plant. “Ultimately, we have to satisfy our customer. If the power crisis continues for a long time (six months to a year), then we will look at other states for expansion.”
For now, Celestica is conserving power by shutting down idle production gear, Swenson said. The company makes computers, communications gear, set-top boxes and other electronics for companies such as Cisco Systems Inc. and Sun Microsystems Inc. Newport Beach-based Conexant Systems Inc., the county’s largest chip maker, is bearing the brunt of the power crisis, according to spokesman Scott Allen. Conexant, which employs 3,000 people in OC and operates a wafer fabrication plant here, is a member of Southern California Edison’s “interruptible” program. Under the program, businesses get deep energy discounts in exchange for agreeing to drastically reduce power use during shortages,a near daily occurrence in recent weeks. Like other so-called interruptibles, Conexant figured on only a few days of power shortages during the summer. The company, which can’t be without power to make chips, planned to keep running during the interruptible period and pay a fine for doing so. “We need a consistent supply of electricity or we will be out of business,” Allen said. In December alone, there were 12 days of power shortages during which interruptible companies were asked to curtail power usage. Conexant said penalties for January stand to come in at $1 million, on top of $2 million in fees for the prior two months. The company pays a penalty of $120,000 per hour during shutdowns, which normally last for two hours.
Conexant officials fear the situation could grow worse and their top concern is getting out of the interruptible program, according to spokeswoman Lisa Briggs.
“As we are looking to summer time we expect more interruptions,” she said. “If we can’t get out, than our penalties will be enormous in the future.” According to Southern California Edison, the rate for using power during shortages skyrockets to $9 per kilowatt hour for interruptibles, up from pennies normally. Conexant has a 10-year expansion plan in Newport Beach that calls for adding 2,000 jobs. But the company was thrown a curve in November when city voters approved a slow-growth measure that could require Conexant to put its expansion to a vote. Company officials say they are looking at their options in the wake of the vote, and now power has become a factor. “If the power crisis continues for long, then we may reconsider our expansion plans here,” Allen said. “We are ready to do anything for regular (power) supply.” The comments of OC technology companies echo those of Craig Barrett, Intel Corp.’s chief executive. This month, Barrett said Intel is unlikely to expand operations in California any time soon because the state’s energy crisis has made power supplies less reliable and too costly. To be sure, though, much of Intel’s recent expansion has taken place outside California, where it’s easier and more cost-effective to build big-ticket chip plants.
“As it is, high-volume fabrication units are moving out of California,” said Peter Glaskowsky, senior editor of the Sunnyvale-based Microprocessor Report. “It is simply a continuation of moving out of an expensive state.” In OC, chip companies generate more jobs in research and development than by setting up fabrication plants. Last year, the largest chip makers based or operating here grew employment at a torrid 16% clip for a total of 6,125 local workers, according to the Business Journal’s list. But they also are buying companies around the country and growing jobs elsewhere at quick pace: company-wide employment at the companies grew 12% to 70,896 people last year. n
