Why Phoenix Became A Hot Spot For Tech Companies

This is our drone crew. They're going to ingest the package into our systems, and then they'll move the drone into position onto the pad here, and off they go. CNBC got an exclusive behind-the-scenes look at Amazon's new drone delivery service, now live in west-Phoenix.

This drone program is the latest cutting-edge piece of tech to go into service in Phoenix, a city that has seen a massive tech transformation in recent years. Jenga! I think this technology is just going to change the way we order.

We're a place that enables these companies to have success, to move quickly and test, to validate their their technology platforms. The city has been a been a longtime hub for aerospace and defense. .

. The Apache helicopters made here. Space technology is also heavily concentrated here.

A lot of med tech here. A couple of years ago, we located Blue Origin's HQ2. Now the region is becoming an epicenter for autonomous vehicles and semiconductor manufacturing.

Taiwan Semiconductor made a major investment, $65 billion investment here in North Phoenix. The U. S .

business is 65 to 75% of all TSMC's revenues. So the U. S .

is very important to TSMC. While cities like Austin have garnered attention for drawing tech companies away from Silicon Valley, Arizona and Phoenix have been just as competitive. Between 2018 and 2023, the city's tech talent workforce grew by 17.

2%. 5 million people, top five city, and across all of that, we're a place that's very attractive when you want to test new novel technologies. Over the last decade, there were 67 technology companies in downtown Phoenix.

Today, there's more than 400. I think the next five years in Phoenix are going to going to absolutely dwarf the last 20. Tech might not be the first thing that comes to mind when you think of Phoenix, if you picture it.

The city's really better known for its golf courses, retirement appeal and scorching heat, but its growth into a hub for technology has been playing out over several decades. Following World War Two, there was a mandate that was handed down by the federal government that said sensitive assets could no longer be located on a coast, and so our federal delegation went after a number of those technology companies. One of those companies, Chicago based Galvin Electronics, ultimately relocated to the city.

And that grew into what we know is Motorola, which became one of the largest employers in Arizona at 22,000 people. And that was just the beginning. .

. In the 1950s, GE computing was located in Syracuse, New York, and that group succeeded in bringing them back to Phoenix. In the early 1970s, there was this early stage company in Santa Clara, California, that was working on semiconductors.

So that same delegation went after that company, and brought them back here. At that time, it was a little start up company called Intel. And since then we've had over 80 semiconductor companies.

The defense industry in particular has had a major presence. Whether it's Raytheon or Northrop Grumman or Boeing, but in particular Honeywell. Honeywell is one of the largest defense companies in the city, with its aerospace division headquartered there.

Their human carry drone division, their military drone division and their delivery drone division is being conceived of here in North Phoenix. In the past decade, Phoenix has seen enormous change, with several new companies transforming the tech scene. If we look at cities that really do end up becoming these important technology hubs, there are really four things that we usually see, and Phoenix really has all of them.

So the first is a favorable business environment. The second really is that ecosystem of other companies. The next is really close proximity to a university that has a strong engineering program.

And then finally, it is that availability of talent. Phoenix has become a major semiconductor manufacturing hub. It all started with Intel.

Intel started here in the 1970s and then grew with its first fab at the Chandler Boulevard campus in the 1980s, and then in the early 1990s, they purchased their Ocotillo campus. So at all said and done, Intel's made about a $30 billion capital investment in the metropolitan Phoenix area. They currently employ about 12,000 people.

In 2020, Intel completed a new 1. 3 million square foot fab at its Ocotillo campus in Chandler, and has plans to invest another $20 billion, building two more fabs at the site. Once you're in one location, it makes a lot of sense to add more scale to that location.

Semiconductors has a very multifaceted, very big supply chain of equipment, chems and gases. All that need to go in those manufacturing. Once that's in one location, it makes it a lot more attractive for the next company to come.

But the semiconductor world has been abuzz with a new entrant into the area, TSMC, Taiwan Semiconductor Manufacturing Company, which makes the most advanced chips in the world. TSMC is really a once in a generation economic development project. This is a $65 billion factory that's building the most world class chips that go into everything from strike fighters to computers.

We spent '21 and the better part of '22 building this facility. All of '23 we moved in the tools, and in '24 we began engineering pilot runs. TSMC initially held discussions with the city of Phoenix back in 2016, when it was looking to expand more of its chip manufacturing beyond Taiwan.

In order to secure the bid, the Greater Phoenix Economic Council spent three years conceptualizing a science and technology park that met the needs of TSMC and its partners. In Taiwan, they're in the middle of science and tech parks. They really believe in having their suppliers and their vendors and their engineering companies and other like minded companies where they can walk across the street, where they can go grab a cup of coffee.

The city was ultimately selected for TSMC's first advanced chip fabrication plant in the U. S. The site, set on a sprawling thousand-plus acres in northern Phoenix, includes a recently completed fab manufacturing 4 nanometer chips, with two additional fabs under construction that will make more advanced two nanometer chips and beyond.

When their original look at Phoenix, it was a $12 billion capital investment and has now moved into a $65 billion capital investment. I led the site selection team around the U. S.

And one of the things that Phoenix did better than any other location, it has a 100-year plan for water. And one of the reasons that we selected Phoenix is it's got redundant power. Our power companies have a 99.

9% uptime. These semiconductor companies that can be, you know, $50 million a minute, if they have downtime, for a loss of power. In the Arizona desert, water is still a scarce commodity, and chip manufacturing takes a lot of it.

The state recently restricted housing development in Phoenix, citing dwindling groundwater supply. We are working on an industrial reclamation water center. When we get that in place, we will have near zero discharge to waste, which means basically the only water we'll lose is through evaporation.

Now, Phoenix is close to breaking ground on the science and technology park it pitched to the company. That Tech Park will break ground here in early 2025. At ultimate buildout, we expect about 62,000 jobs surrounding TSMC and including TSMC.

They're basically duplicating the science park concept that was pioneered in Taiwan. And what that does is it solves lots of problems for our smaller suppliers because they don't have to buy land, they don't have to put the infrastructure in place. They can actually rent space and just plug in and they can be here with us.

Arizona now is definitely going to be known as one of the places to get leading edge semiconductors in the United States. There's 40 suppliers that have also come from all over Asia, all over Western Europe, to invest here in Phoenix. That's creating thousands of jobs, multi-billion dollars of additional investment.

And this probably goes down as one of the best business cases of success stories in economic development in Arizona's history. Phoenix was already a major hub for hot weather testing. Now it's become a hub for more advanced driverless cars.

Over the years, Uber, Cruise and Waymo have tested their autonomous vehicles in the city. We're a sandbox for autonomous vehicle testing. It's also a long haul truck.

So 18 wheelers down the freeway. We've got companies that are testing between Phoenix and Tucson. Just the infrastructure of Phoenix, like the gridded street environment, is quite good for testing, the weather is good for testing.

It just made a pretty optimal place to test a lot of these autonomous vehicles. Waymo, formerly Google's self-driving car project, is the biggest player. The company began testing its autonomous vehicles on the city streets back in 2017.

We brought in our streets department and our police department, and I'll be honest with you, in the very beginning, they looked at Mayor Gallego and I like we had six heads. They were like, you want to do what? Where?

Waymo first launched its commercial robotaxi service in Phoenix. It now operates across 315 square miles in the city. We are the first airport in the world that you can be picked up or dropped off in a fully autonomous experience.

If we look now, just total number of robotaxi miles driven. Phoenix is above and beyond other markets. People are doing it in a lot of markets now, but Phoenix is still the biggest area, the most miles driven.

One of the main reasons for its success, policy. Phoenix and Arizona have been welcoming to AV testing. If you go back even to like 2015, when the technology was pretty nascent and still developing, then Governor Ducey did a lot of executive orders, which really reduced barriers, allowing companies to test these vehicles on public streets.

Autonomous vehicle testing in the city was nearly derailed following the 2018 self-driving Uber accident, where a test vehicle with a safety driver struck and killed a pedestrian. Following the incident, the company halted testing in the city and ultimately sold off its self-driving division, with the National Highway Traffic Safety Administration condemning the lack of state and federal regulation for testing autonomous vehicles. In addition to autonomous vehicles, Phoenix has now seen automation take to the skies.

In November, Amazon received regulatory approval to launch its Prime Air drone program in Tolleson, a suburb in west Phoenix. We don't see this as a test. This is just the first integration into an Amazon fulfillment center, and we'll start scaling way beyond here.

Will everybody be able to get a drone delivery at their house or what's this going to look like? That's the plan. So for us, scale is 500 million deliveries a year.

We want to make this delivery method available to customers all around the world. Drne delivery has been a long time focus for the company, which first unveiled plans for that concept more than a decade ago. Your family has decided you want to order Jenga.

Add it to my cart, delivery by drone, place the order like you would at any other package. Okay. And you just placed it.

Delivered by 3:11. So, 61 minutes. Delivery with drone.

It says clearly you have to pay $9. 99. Yep.

Is there ever a time where this will be part of the Prime subscription? We're working through it. Suhang p ick the order, down the bottom here.

It'll say it's a drone order. Those boxes have a dampening mechanism inside that we call a trampoline. It actually is dampened when it falls from the drone.

From the moment you clicked, to the moment she's picked and packed, that's 15 minutes. We call it Prime Air Drne delivery center. This facility, as is, is set up to do hundreds of deliveries a day.

So talk me through the design here. Six propellers it looks like? There's six of them.

We've designed the system in its entirety. If we lose a motor, we can fly on the other five and come home safely. The props were designed by us to reduce noise.

Six cameras, that's how we know what's happening around us and what's happening underneath us. This drone, as compared to our previous drone, is half the cost, flies twice the distance and is half as loud. We have two take off pads and you have a couple of landing pads at the back here.

Those pads will continue to cycle. Five, six, seven years out, we'll have this drone and we'll have other drones to do other missions. This is just the beginning.

The boom in tech activity in Phoenix has created tons of high-paying job opportunities. We've moved from the average wage of a job in 2014 at $30,000. At the end of 2023, it was $84,000.

Demand for engineers has also been a major boon for local universities. Arizona State University currently has 30,000 engineering students that are on campus today. This year we'll produce 7,500 engineers or more.

Largest producer of engineers in the country. We have one of the largest incubators for new semiconductor companies in the world. TSMC has been struggling to find skilled workers.

The U. S. , which once led in semiconductor manufacturing, lacks a talent pool of advanced chip engineers, forcing the company to create some of its own programs.

Since the start of its of its Arizona fab, TSMC has sent some 600 engineers to train in Taiwan, and brought over experts from its headquarters on temporary three-year assignments. Ultimately, we may need 20,000 in workforce for TSMC, on the semiconductor technician and engineering side, we have created, in partnership with TSMC, the country's first registered apprenticeship training program in semiconductor technician. And the city expects the impressive growth to continue.

We picked Arizona and Phoenix in particular because we've got over 1,100 acres here. The idea is we want room to be able to grow, and I won't speculate beyond what the three fabs that we're building are, but there's plenty of land for us to grow.