Austin’s rise as a tech hub reflects decades of strategic planning and pivotal developments. The commitment of the community transformed the city into a global tech center.
Dubbed “Silicon Hills,” Austin hosts major players like Apple, IBM, and Tesla alongside thriving startups. With a skilled workforce, business-friendly policies, and collaborative innovation, the city became a leading tech hub, especially when it comes to advancing the semiconductor and chip industry.
“The growth of the entrepreneurial, and certainly the tech ecosystem […] has really fueled the growth of the city as a whole,” said Dr. Steve Gray, faculty director at the Herb Kelleher Entrepreneurship Center at the University of Texas at Austin. “The growth of the city really is reflective of the growth of its tech and entrepreneurship ecosystem.”
Despite this potential, as President-elect Donald Trump prepares to take office, many in the field are bracing for impact.
A critic of the 2022 CHIPS and Science Act, an industrial strategy to revitalize domestic manufacturing, Trump has called the law a misuse of taxpayer funds. When interviewed on the Joe Rogan Experience podcast, he called it “so bad,” and argued defunding new fabrication (fab) and research and development (R&D) centers, and advocated for imposing tariffs on overseas semiconductor manufacturers.
After surviving the dot-com bubble, 2008 recession, and pandemic, Austin was able to remain at the forefront of this sector. But can it survive the next set of possible challenges?
Becoming Silicon Hills
This thriving city wasn’t always a tech destination.
“Austin as a city has been and historically was a college town and a state capital, first and foremost,” Dr. Gray says. “It was in some ways a little bit of a ghost town in terms of population, in terms of vibrant kind of city, until about maybe the ’60s and [so on],” Dr. Gray says.
The foundations of the Austin’s tech scene began in the 1960s with the arrival of IBM and Texas Instruments. This, along with the University of Texas’ commitment to R&D and Austin’s affordability, seeded the city’s future tech ecosystem.
For decades now, Central Texas has been positioning itself for significant manufacturing expansion. This determination to become a manufacturing and semi-conductor hub began in the 1980s, specifically when IBM and Dell established themselves in the city.
“I think the city in particular didn’t want to fall into the trap of not keeping up with [the evolving industry], so they went all in,” explains Tim Sprinkle, the principal of Venture Capital Marketing with Metric Capital Marketing. “They really outstripped places like Dallas and Houston and bigger cities in Texas because they did that.”
The sudden popularity was due to a number of business-friendly policies. That, and cheap cost of living, helped turn the city into a destination for tech firms and young professionals. And as a result, from 1990 to 2000, the high-tech sector grew 125%.
The Rise of the CHIP Industry
Today, Austin is home to Apple, Oracle, Facebook, Google, and Amazon, along with numerous startups and venture capital funding. Data center expansions from companies like Skybox and the rise of incubators and VC firms has also strengthened the ecosystem. And in 2021, Samsung, which operates two semiconductor fabs in Austin, announced plans for a $17 billion chip factory in Taylor.
A major factor in chip market success connects back to 1987, when the U.S. launched SEMATECH, short for “Semiconductor Manufacturing Technology.” This was a public-private partnership that aimed to advance semiconductor manufacturing research among major industry players.
While its legacy is mixed, SEMATECH left a significant impact on U.S. manufacturing performance in the 1990s. Among its achievements were reducing chip miniaturization timelines from three years to two and cutting costs from 30% to 12.5%.
After the COVID-19 pandemic exposed vulnerabilities in the global semiconductor supply chain, it became a top national priority to maintain America’s competitive edge.
In 2020, President Joe Biden signed off on the CHIPS and Science Act, which was actually inspired by SEMATECH. The $52 billion program assisted over 50 U.S. semiconductor projects, with Texas accounting for $61 billion across six projects.
This was followed by Gov. Greg Abbott signing the Texas CHIPS Act in 2023. The legislation allocated $1.4 billion for private chip manufacturing and universities focusing on R&D in the field. As a result, Samsung, Texas Instruments, Infineon, GlobalWafers, and more increased operations in Texas operations, as well as Apple and Amazon designing custom chips in Texas.
Can Austin Maintain Its Growth?
While Austin has thrived as a tech hub, Trump may create new roadblocks that could completely halt the city’s future progress. Additionally, his pitch comes during high geopolitical tensions between China and Taiwan, which continues to loom over the semiconductor supply chain.
So far, Trump has suggested to imposing tariffs of up to 200% on Chinese imports. When considering the U.S.’s reliance on Taiwan for chips, China could easily retaliate by placing a blockade on Taiwan. This would further escalate potential supply disruption, something the industry is not well-prepared for.
This strategy has been met with a large amount of criticism. This could result in driving up costs by as much as 59%, according to the U.S. International Trade Commission.
As Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, told CBT News, the reality of reshoring semiconductor production is more complex than good and bad. Developing semiconductor manufacturing plants requires billions of dollars and a considerable amount of time. Adding that there is essential infrastructure required to for companies to succeed, such as massive water access.
Another concern is China’s increasing influence on semiconductor production. As of 2022, China accounted for approximately 24% of the global semiconductor market, a significant rise from just 12% in 2015.
In an effort to deliver on funding promises, the U.S. Commerce Department announced the finalization of several projects. It allocated $36 billion for chip initiatives, including $6.4 billion for Samsung and $8.5 billion for Intel, with efforts underway to finalize these agreements before Biden leaves office on January 20.
“My gut on this [is that] it’s not going to be gutted because a lot of investment has gone into that the last couple of years,” Sprinkle says. “Big companies have spent a lot of money in reassuring some of the chip production. I think that’s going to be a driver for a lot of areas for a long time, because there’s a huge need for that.”
But until Trump is sworn in, the only thing people can agree on is that no one knows what will happen next.
“I will say it remains to be seen in terms of what policies might unfold,” Dr Gray says, adding that focusing on AI and health tech will likely have the best chance at growth. “Any policies that relate or thwart the growth of those two subsectors, I think, would be challenging.”
“[Continued growth] is about remaining competitive in the labor market and being a destination that talented professionals would find appealing as a place to live and work. That foundation provided the roots for a truly startup entrepreneurial ecosystem to build its way up, whether that’s through corporate spin-offs or through academic technology transfer as faculty identify and come up with new inventions that can be turned into viable businesses.”
In the face of possible catastrophe, the best thing Austin has going for it is the city itself.
“The nice thing about where Austin is now versus where they were 10 years ago, 20 years ago, they got a diversity of industries and different kinds of companies. They’ve got a community there that’s really strong,” Sprinkle concludes.
The best move in this time of uncertainty to understand where the markets are headed.
About the Author: Tess Danielson is a journalist and writer focusing on the intersection of technology and society.
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