Greater Phoenix Economic Council

2022

WHY PHOENIX IS SO HOT (And we’re not talking about the weather)

GPEC leads the Valley of the Sun to a record-setting run of economic growth

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GREATER PHOENIX ECONOMIC COUNCIL

GROWTH SPURT Here’s how GPEC has helped the economy in Metro Phoenix reach new heights for innovation and expansion

By MICHAEL GOSSIE

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hile many of the nation’s businesses have struggled throughout the pandemic, the economy of Metro Phoenix has been firing on all cylinders.

“Arizona has been the benefactor of many elements that have helped the economy, including attracting top tier e-commerce, in-migration from surrounding states and the fundamentals 92

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that are attracting businesses to Arizona,” says Derek Wright, president of Suntec.

Wright also points to the many megaprojects that have gone online over the past year that will set the Metro Phoenix region up for a ripple effect of companies following suit in choosing Arizona for additional operations. And many of those mega-projects would not be possible without the behind-the-scenes work of the

Greater Phoenix Economic Council (GPEC).

“We can see the evidence of GPEC’s investment, relationships and hard work from east to west in the Valley,” says James Murphy, CEO of Willmeng Construction.

“Buckeye was named the fastest-growing city, according to U.S. Census data, and we can see significant infrastructure growth that laid the groundwork for this commercial and residential development.

Companies like ElectraMeccanica building a production plant in Mesa are spurring growth in the East Valley for similar plants. E-commerce is active across the Valley and prompting subsectors such as cold storage to grow at a faster pace than many cities in the nation as a result of the business attraction, labor pool and product demand.”

Az Business talked with Chris Camacho,

president and CEO of GPEC, about the recent economic wins the organization has achieved and what he sees for the future of Metro Phoenix’s economy.

Az Business: Can you talk a little bit about how 2021 went for GPEC? Chris Camacho: In the last 12 months, we’ve seen a massive shift in a couple different areas — one being that

industrial technology momentum has been very strong. The industrial tech space is generally categorized by advanced electronics, semiconductors, and the supply chain that supports those sectors.

We’ve had pretty robust activity in those areas, plus electric vehicles. We’re coming off the heels of Taiwan Semiconductor Manufacturing Company (TSMC) coming to Arizona — which is the biggest deal in AB | January - February 2022

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Chris Camacho the country — along with the expansion of Intel, which is a $20 billion investment.

We’re on the map globally now for industrial technology. In a normalized market, you would see about 60% of GPEC’s deal flow in office and 40% in industrial. Today, we’re doing 70% in industrial and 30% office deals. So, it’s pretty graphic change.

AB: What makes Metro Phoenix so attractive for these industrial projects?

CC: Well, it starts with labor. We have the requisite labor with our history in semiconductors and aerospace and defense. It starts with a qualified labor force, having a P-20 education system that meets the needs of business — whether it’s precision manufacturing within the community college system or the engineering capacity at our universities.

That’s been part of the reason why we’ve been so attractive to industrial users.

We are also growing in biomedical, and a large part of that success is because of the University of Arizona, Creighton, our medical schools, and the partnership with Mayo Clinic and ASU. We’re just hitting our stride on that. That’s going to get even more intensified.

AB: Outside of the workforce, what are these industrial clients seeking?

CC: They look at the infrastructure and the power grid. Is the power grid stable? Are the rates competitive? Is the water and wastewater infrastructure already there or do they have to build it? Finally it’s quality of life and cost competitiveness. So you put together the quality of life, meaning affordability for families, and the cost competitiveness for company operations. They can attract people who want to move out of California or want to move from Chicago 94

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James Murphy

Derek Wright

to Arizona. So all those ingredients are why we’ve done well.

AB: How did Metro Phoenix become such a hot spot for electric vehicles so quickly?

CC: I give Gov. Doug Ducey a lot of credit. Back in 2015, before electric vehicles and autonomous vehicles were really mainstream, he adopted an executive order that enabled Waymo and other companies to test in our market. At the time, it was kind of a frontier mindset to do that. But what happened, ultimately, was we garnered a lot of notoriety because of the testing of a lot of these nascent emerging automotive companies. That just builds over time, so success begets success. When you have that testing, the engineering capacity at ASU, and being next door to California, where a lot of innovation initially was created, all those initial ingredients help us become a destination for scaled manufacturing.

But what put us on the map five or six years ago was the initial fortitude to create regulatory policy that was attractive for autonomous vehicle testing here.

What have we done right to attract that investment?

really accelerated in the last two to three years is these out-of-state venture capital firms are looking at Arizona now, much like they are looking at Austin, Texas.

AB: How have things like the FinTech Sandbox and the Wearable Technology Center impacted Arizona in terms of becoming a hot spot for innovation?

CC: They’re all ingredients, right? There are a dozen companies in the Wearable Technology Center that I think are going to put Arizona on the map for biomedical instrumentation. The Wearable Technology Center and the sandboxes around PropTech and FinTech really put us on the global map because people look at them and say, “Hey, this is a place that’s very, pro-business and is going to enable global technologists to test their idea or concept in a state that will help to protect their IP.” And the difference between Arizona and California or any other Western market is you’re able to come here and test and validate your technology with such ease, as opposed to a lot of the regulatory burdens that exist in other places.

AB: We talked about semiconductors and electric vehicles. What are some of AB: Attracting venture capital was a the other hot sectors that you’re seeing problem for Arizona in the past, but that heading into 2022? seems to be changing. What have we done CC: All the way through this downturn, right to attact more investors? cybersecurity and software have been CC: A decade ago, we were satisfied with really strong, and they’ll continue to be being a place where people came and we strong. What also has occurred in the last took other people’s intellectual property 24 months is we’ve quietly become one (IP) and allowed them to get it to scale. of the top financial services hubs in the About a decade ago, we set a chartered country. While there may not be a lot of course to build our own IP. So we’ve created fanfare about that, as the return to office assets such as the Wearable Technology occurs over the next 24 months in New Center and the Blockchain Institute that York, Chicago, Boston or Los Angeles, we’re were launched over the last five years. seeing and hearing about divisions being Now, we’re creating new Arizona-based IP. shifted out of those places and very quietly So, what’s been happening and what has moving into existing space they already

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GPEC locates in 2021 Molded Devices, Tempe 62 jobs

Align Technology, Tempe 150 jobs

Bonelli Doors + Windows, Mesa 35 jobs

Delta Apparel, Phoenix 69 jobs

Cambridge investment Research, Phoenix 50 jobs

*Project Seahawk, Mesa 53 jobs

Five Below, Buckeye 150 jobs *Project Wrigley, Goodyear 200 jobs PennyMac Mortgage, Phoenix 374 jobs Bright Health, Tempe 90 jobs Amazon, Goodyear 1,000 jobs Honeywell (Project Storm), Phoenix 340 jobs Honeywell (headquarters), Chandler 585 jobs Kuehne + Nagel, Phoenix 35 jobs Protecht, Phoenix 30 jobs Langham Logistics, Phoenix 25 jobs Metal Finishing Solutions, Phoenix 28 jobs *Project Westward, Phoenix 111 jobs *Project Millennial, Phoenix 761 jobs

Awake Window and Door Company, Gilbert 20 jobs ThriftBooks, Phoenix 150 jobs Green Worldwide Shipping, Phoenix 30 jobs Mlily USA, Goodyear 424 jobs Viavi, Chandler 233 jobs LifeStance Health, Scottsdale 100 jobs *Project Test, Phoenix 50 jobs *Project Dino, Glendale 25 jobs ElectraMeccanica Vehicle Corp., Mesa 300 jobs Robinhood, Tempe 182 jobs Mechanical Keyboards, Chandler 15 jobs APEL Extrusions, Phoenix 184 jobs IQVIA, Mesa 100 jobs

ClearSky Health, Avondale 75 jobs TSMC, Phoenix 1,900 jobs HelloFresh, Phoenix 750 jobs OnePointOne, Avondale 53 jobs Thinkzilla Consulting Group, Scottsdale 10 jobs KOAM, Phoenix 10 jobs Marketech International Corp., Phoenix 69 jobs Anuncia, Scottsdale 10 jobs *Project Corney, Mesa 600 jobs *Project Jomi, Casa Grande 58 jobs Georgia Pacific, Phoenix 41 jobs *Project Flaming Bird, Phoenix 210 jobs Brooklyn Bedding, Glendale 181 jobs

* Locates listed under project name have completed lease agreements, but have not made formal announcements.

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have in Phoenix. So I think financial service is going to be very exciting. We also lead the nation in percentage job growth in bioscience. If you add that to the healthcare segment, we’re going to have more than 300,000 people working in that sector alone in the Metro Phoenix region.

AB: One of the strengths that Metro Phoenix has always had has been affordable living costs, but housing prices are skyrocketing. How will that impact our ability to attract new business?

CC: Yes, and the projections are that we’re going to see pretty modest increases again. The good news, if there is any, is that our base was lower than the national average. For the first time we’ve creeped over on the index, instead of at the 100% index, we’re at 113% on the housing index.

But our overarching affordability is still competitive. That’s what a lot of these hot markets are grappling with today. So when you’re in Austin or Seattle or Denver, or these other places where jobs are wanting to go, the only advantage we have is we have much more land to grow. Where we got caught a little bit flat is we’ve seen an overarching demand for our housing, but unlike 2006, we did not overbuild. We don’t have an oversupply today. I do think the housing market will level out as you see interest rates hike in 2022. I think you’ll see a much more normalized housing situation than what we’re seeing or what we saw in the last 12 months.

AB:Looking ahead to 2022 and beyond, what’s your outlook for GPEC and the Metro Phoenix economy?

CC: I think we’ve got another four quarters of pretty extensive growth. In our pipeline today, there are 252 companies evaluating the market. Like I said, about 70% of those are industrial technology related companies. My hope is that we strengthen or fortify our position of being a global leader in semiconductors.

I think we’re going to continue to be an e-commerce hub. I also think you’re seeing a return to aviation, so commercial and business aviation activity around our airports. I think we’re very wellsituated on many fronts in terms of cost competitiveness, labor supply, and quality communities. So that’s why I’m still very confident that we’re going to have a very strong 2022 calendar year.

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PAYING DIVIDENDS Here’s how Metro Phoenix is starting to attract more venture capital

By KYLE BACKER

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nnovation and Arizona State University (ASU) are essentially synonyms. For the seven years that U.S. News & World Report has offered an innovation category, ASU snatched No. 1 every time, outperforming other juggernauts such as Stanford University and Massachusetts Institute of Technology.

One outlet for this creativity is Skysong Innovations, the vehicle that brings ASU research into the market. In November 2021, ASU passed a significant milestone when it announced that startups in its portfolio attracted $1 billion in external funding.

“It’s a testament to the quality of the ASU technologies that are coming out of this university,” says Kyle Siegal, senior vice president and chief patent counsel at Skysong Innovations. “It speaks to the growth in Arizona companies’ ability as a whole to attract venture capital investment from outside of the state.”

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Historically, the Grand Canyon State hasn’t been a top contender for venture capital. CBRE’s Q3 2021 Life Sciences Trends report shows that three markets attract 70% of life science venture capital funding: Boston-Cambridge, San Diego and the San Francisco Bay area. The same report identifies where the remainder of the 30% is allocated, and Phoenix didn’t attract enough to warrant a “hot spot” label.

Still, Joan Koerber-Walker, president and CEO of AZBIO, is bullish on the state’s future as a magnet for venture capital.

“We are making great progress. Every time I get new reports, Arizona is getting more and more venture capital,” she says. “But we’re still not in the top 10, because other states have a complete ecosystem. If you’re missing even one component, it doesn’t work efficiently.”

ATTRACTING INVESTORS: Arizona State University just passed a milestone with more than $1 billion raised in external funding by the startups in its portfolio at Skysong Innovations, the entity that brings ASU research into the marketplace.

(Provided photo)

Brandon Clarke

Joan KoerberWalker

Kyle Siegal

An integrated system An ecosystem is composed of separate-but-related parts that impact one another. If a herd of deer doesn’t have a predator, the group will overpopulate and stretch the available resources until the population recalibrates itself. Even though the wolf preys on the deer, they both need each other for a healthy existence.

Luckily, entrepreneurs are far more collaborative than the denizens of the natural world. Brandon Clarke, co-founder and CEO of StartupAZ, describes the startup ecosystem as the humans, assets and resources that comprise a vibrant community.

“Universities are participants in the ecosystem, along with accelerators, incubators and mentor networks,” he says.

Clarke launched StartupAZ in 2015 because he saw a need for an organization dedicated to founders learning from one another.

“As you get into the stage of finding product market fit, talent and capital becomes essential, but so does having a peer network of other founders going through the same thing. We took some principles from other CEO mastermind type groups, and focused on early stage, founding CEOs of high growth tech companies,” he says. “We felt if we could develop that category of leader, it would have a big impact on our ecosystem. And more importantly, it could help establish a stronger, more resilient economy rooted in high growth tech in the coming years and decades.”

Convincing investors that successful technology or life sciences companies will come from Greater Phoenix is a challenge because, as Siegal notes, venture capital firms want to co-locate near innovation hubs.

“Historically, it’s been challenging for entrepreneurs in Arizona to raise early-stage capital, because the majority of wealth created in the state has been through real estate, not technology related investments,” he says. “It’s a matter of making the case to the venture capital ecosystem over a period of many years that they should be paying attention to what’s going on here.”

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GPEC to the state and becoming a part of the ecosystem. Clarke notes that over the last three years, active StartupAZ members have collectively raised over $201 million, approximately 80% of which has come from outside of Arizona.

“It’s a sequential process, but we’re well on our way,” Siegal adds.

“If we talk about ASU, we’ve launched more than 190 startups.

Many of our spinouts are based in Arizona, and most of their financing does come from out of the state. That means folks outside of Arizona are noticing the quality of innovations.”

Internal growth One of ASU and Skysong Innovations’ spinout companies, OncoMyx Therapeutics, is built around a treatment that uses an engineered virus to attack cancer cells developed by Grant McFadden, a professor and director of ASU’s Biodesign Center for Immunotherapy, Vaccines and Virotherapy. In December 2021, the company announced $50 million in Series B funding.

“That’s the exception, not the rule,” Koerber-Walker says. “It’s a harder to get venture investment here than it is in places like Boston, San Francisco or San Diego. It’s not that our companies aren’t any better than what they have. It’s because we don’t have very early-stage venture capital, sometimes called seed capital.

The companies don’t get to a level where they are venture ready.”

AZAdvances, an initiative of AZBio and the Opportunity

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Through Entrepreneurship Foundation, is designed to address the lack of venture capital in the state, what Koerber-Walker describes as a significant issue in the way of building up the life sciences industry in Arizona.

“Venture capitalists look for certain milestones that a company has hit before they’re ready to write a big check. Getting through those gates cost money,” Koerber-Walker explains. “AZAdvances is not currently deploying capital, but the goal is to build a $200 million endowment that will then yield $10 million a year in early seed capital in Arizona forever. That will allow the most promising companies that are based in Arizona to progress through these gates so they can attract more capital.”

Ultimately, she believes that devoting resources in our innovation sectors, whether it’s technology, life science or advanced manufacturing is one of the greatest opportunities Arizona has coming out of the pandemic.

“As we invest in these companies, they will grow and hire people here. These industries tend to have high wages, which builds the money supply that circulates in our state, so every business benefits,” Koerber-Walker concludes. “Every time that money recirculates, the state gets a little piece and it builds our tax base, so we have more money for the important things, such as roads, education and taking care of our people. This is a wonderful opportunity for Arizona, and it’s time to capitalize on it.”

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SILICON IN THE VALLEY Metro Phoenix has become a major player in the semiconductor industry, generating jobs and strengthening the economy 104

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By DANIEL OBERHAUS Arizona State University

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ilicon is an example of a semiconductor, materials that have the characteristics of both a conductor, such as copper, and an insulator, like glass, allowing engineers to precisely dial in exact electricity flow under specific conditions. This makes semiconductors well-suited for building the microscopic circuits at the heart of the computers in our devices.

Every year, more than a trillion semiconductors roll off assembly lines to meet an insatiable appetite for

microelectronics that are faster, smarter, cheaper; demand is growing.

The U.S., birthplace of semiconductors, was once the global manufacturing leader.

But over the past few decades, competition drove many manufacturers abroad.

According to the Semiconductor Industry Association, the U.S. now manufactures about 12% of the world’s semiconductors.

The coronavirus pandemic exposed the risks of relying on an international supply chain for a critical product. As the virus circled the globe, worldwide semiconductor manufacturing facilities — called fabs — came to a standstill. Suddenly, no one could get their hands on the chips that power the modern world. The shortage has held up production for cars, televisions, washing machines and even smart toasters.

Politicians in Washington, D.C., realized that semiconductor manufacturing in the U.S. is a matter of national security.

When President Joe Biden announced his administration’s $2 trillion infrastructure bill, he held a semiconductor chip aloft to underscore the industry’s prominent place in the bill.

“Everyone is impacted by semiconductors, but we don’t always see all the ways that microchips support the lives we lead,” says Sally C. Morton, executive vice president of Arizona State University’s Knowledge Enterprise. “We need to have autonomy in this space for both production and distribution.”

Arizona’s chip investment Because of strong historical roots and rapid expansion, Arizona is poised to be at the epicenter of the American semiconductor revolution, with ASU playing a starring role. Last spring, two of the world’s largest chipmakers, Intel and Taiwan Semiconductor Manufacturing Company, announced plans to spend a combined $32 billion building three semiconductor fabs in the Phoenix region, with TSMC purchasing enough land to possibly build five more fabs, which would invest billions of dollars more. Around the same time, Samsung shortlisted Phoenix as a possible factory site.

The interest in Phoenix makes sense.

For decades, city officials, business leaders and ASU cultivated the infrastructure,

regulatory environment and human talent the industry needs. And their timing couldn’t have been better. Worldwide semiconductor industry sales hit $439 billion in 2020, according to the SIA, with the industry projected to reach $803.15 billion by 2028.

“Building up the semiconductor ecosystem in this state will bring industry and jobs,” Morton says. “This is an economic opportunity that improves our well-being.”

When Michael Kozicki, a professor of electrical engineering and director of the Center for Applied Nanoionics, first arrived at ASU in 1985, semiconductor manufacturing had already established a foothold in the area. Intel and Motorola anchored it, building a foundation that includes NXP, ON Semiconductor, Microchip Technology, Medtronic and others.

Kozicki’s ability to straddle the divide between industry and academia has proved invaluable for preparing generations of Sun Devils for careers at the world’s largest chipmakers. Today, he leads courses covering everything from working in the planet’s cleanest laboratories to designing next-gen chips, a heady mixture of practical and experimental knowledge that students need to drive nonstop innovation in microelectronic engineering.

Local partnerships, global impact “There are not many universities that do courses in semiconductor fabrication where you get a hands-on, industry-relevant education,” Kozicki says. “It’s all part of getting people ready to be productive professionals within the semiconductor industry. We’re a major supplier of talent.”

ASU’s emphasis on industry-relevant research has forged mutually beneficial partnerships with local semiconductor firms. In 2017, for example, the university partnered with ON Semiconductor, a Phoenix-based supplier to the global industry, to establish a $2 million, fiveyear award to support two ASU professors working on the leading engineering and supply chain issues faced by manufacturers.

One of the award recipients is Bertan Bakkaloglu, a professor of electrical engineering. His research focuses on AB | January - February 2022

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GPEC analog circuit design. It’s foundational for the emerging Internet of Things, connecting machines to the web to monitor and control them remotely.

To turn off lightbulbs while away, a conventional copper switch isn’t going to cut it.

Bakkaloglu says the ON Semiconductor professorship critically supports his students’ research efforts. Manufacturing small batches of experimental semiconductor chips can cost tens of thousands of dollars. Still, the process of taking a chip from concept to fabrication is a critical experience that prepares students for the industry’s challenges.

“Our students gain experience in areas that almost every semiconductor company in town requires,” Bakkaloglu says. “My PhDs don’t go to the Bay Area or Texas.

They stay in Arizona. So it’s a fundamental win-win because there’s a shortage of qualified semiconductor designers, and these companies get graduates who hit the ground running.”

ASU’s Ira A. Fulton Schools of Engineering will further boost Phoenix’s reputation as semiconductor central

with the recent launch of the School of Manufacturing Systems and Networks, which focuses on the research and education needed to drive the ideas critical to technology development for the Fourth Industrial Revolution. ASU’s newest engineering school will prepare students to meet the challenges of industry 4.0, with semiconductor-related engineering and research a core component.

“Without a doubt, the school will play a role in helping industry leaders think about what the fab facility of the future looks like,” says Kyle Squires, dean of ASU’s Fulton Schools. “How can you neglect that, given what’s happening in the Valley with semiconductor manufacturing?”

Benefiting Arizonans Dennis Hoffman, a professor of economics and director of the L. William Seidman Research Institute at the W. P. Carey School of Business, says semiconductor manufacturers making a home in the Grand Canyon State support Arizonans.

“Every electronics manufacturing job accounts for another five or so jobs in

vendors and suppliers,” Hoffman says. “It’s a valuable asset for the state’s economy.”

Earlier this year, the Senate passed the United States Innovation and Competition Act, which includes $52 billion to boost semiconductor manufacturing in the U.S. Hoffman sees this, and other national and state funding, as prudent investments that will deliver benefits to Arizonans.

For Morton, the growth of the semiconductor industry in Phoenix underscores the importance of collaboration between the university and industry driven by organizations such as ASU’s Knowledge Enterprise. It’s critical that the R&D Sun Devils do in the lab makes its way into the real world so that new technologies don’t get trapped in the so-called “valley of death,” the gap between academic innovation and commercial application.

“We don’t want to just do research, we want to disseminate research and implement it to have an impact on the world,” Morton says. “This is at the heart of the mission of ASU: research of public value and service to our communities. This is what we do. This is primary.”

METRO PHOENIX SEMICONDUCTOR INDUSTRY Greater Phoenix has been a leader regarding top cities for semiconductor companies since 1949 when Motorola first opened a facility in the region. Today, many industry leaders call Greater Phoenix home. These established manufacturers have created a legacy of innovation in Greater Phoenix, fostering the region’s skilled engineering workforce and developing the semiconductor industry’s cutting-edge technologies: • Intel Corporation • ON Semiconductor • NXP Semiconductors • Microchip Technology.

Coming soon: In 2020, Taiwan Semiconductor Manufacturing Company (TSMC) paid $89 million for 1,129 acres of undeveloped land in North Phoenix with plans to build a $12 billion chipmaking facility that would create 1,900 full-time jobs over a five-year period. In May 2021, a report said TSMC is looking at building up to five additional fabrication facilities for its Arizona site. The new plan will be a $35 billion investment in advanced manufacturing — almost three times larger than the initial estimate.

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