Chip Manufacturing Boom Likely To Exacerbate Labor Shortage For Data Center Builders
The aggressive push to ramp up semiconductor production in the U.S. may worsen the data center industry’s already-dire construction labor shortage.
The pandemic-triggered scarcity of semiconductor chips created havoc for manufacturers of consumer goods in the U.S., slowing the supply of products ranging from automobiles to gaming consoles and causing millions of dollars in economic damage. The supply chain chaos has led to an urgent effort by the federal government and major chip manufacturers to dramatically expand semiconductor manufacturing capacity in the United States, with a number of major chip fab projects launched across the U.S.
While a more robust chip supply may be a long-term positive for a data center industry that is among the largest consumers of semiconductors, experts say the build-out of enormous chip fabrication plants in growing data center markets is placing further strain on a supply of skilled, high-tech construction labor that is already stretched thin.
As chipmakers like Intel, Taiwan Semiconductor Manufacturing Co. and Samsung begin construction in markets such as Phoenix; Columbus, Ohio; and Hillsboro, Oregon, they are competing for the same tradespeople and contractors needed to build data centers. More often than not, the chipmakers are winning these battles. And with Congress considering providing over $50B in incentives for chip manufacturing, data center developers say they expect the problem to get worse.
“In Phoenix, you have three major semiconductor fabrication projects going on right now … and lots of electrical contractors and crews that are needed for those projects in addition to all the data center demand that’s going on in the marketplace,” said Jeremy Meyers, vice president for real estate and infrastructure business development at data center developer EdgeCore Internet Real Estate. “You’re quickly in a place where labor force and construction power are constrained in some of these big markets.”
Labor woes for data center builders existed well before the surge in chip fabrication projects. Aspects of data center construction require a high level of specialization and industry-specific experience. Because of the mission-critical nature of data centers — where an outage can cause millions of dollars in economic damage and jeopardize public safety — previous experience in the industry is prized. Amid a flood of demand for data center build-outs that shows no signs of abating, the existing talent pool is spread thin.
But industry insiders who spoke with Bisnow all agree that the emergence of multiple chip fabrication projects in data center markets over the past year is adding to the problem. Like data centers, chip manufacturing plants need hundreds of megawatts of cheap power and large swaths of available land, so it is little surprise that both industries are being pulled to the same markets.
In the Columbus suburb of New Albany, Ohio — an emerging data center hub — Intel is building a $1B mega fab chip plant on more than 1,000 acres. Intel recently completed an expansion of its plant in the key data center market of Hillsboro, Oregon, and it is building a pair of new facilities in Phoenix. Taiwanese chipmaking giant TSMC is building a $12B facility in Phoenix, while Samsung Foundries is undertaking a $17B chip fabrication project in Taylor, Texas.
The massive scale of chip fabrication plants means the build-out of a single facility places far greater pressure on a market’s labor supply than any data center project. Experts told Bisnow that the largest data center projects employ around 1,000 tradespeople, while Intel claims its New Albany chip plant project will employ 7,000 construction workers. According to recent reports, TSMC employs around 6,000 construction workers at its project in Phoenix. And chip manufacturers are competing for the same depleted talent pool of electricians, technicians and others with mission-critical experience and specialty skill sets as the data center industry.
“Whether they’re building a chip fab or a data center, those are going to be almost the exact same crews,” said Matt Koerner, principal at Critical Project Services, a data center development consultancy. “The skill set of hooking up switch gear or hooking up generators or other critical power equipment is going to be the exact same whether you’re doing it in a chip plant or a data center.”
Making matters worse for data center developers, industry insiders told Bisnow that competition between competing chipmakers is dramatically driving up the cost of labor. Companies like Intel, TSMC and Samsung, armed with massive development war chests and aiming to beat each other to market, are offering tradespeople and contractors pay up to 40% over typical rates. They are also offering additional incentives like guaranteed overtime and two-year contracts that were previously almost unheard of.
“This shocked me — it’s really an arms race,” said Samir Shah, managing partner at Phoenix-based consultancy TBL Mission Critical. “It’s chip manufacturer against chip manufacturer, with the casualties being the data center clients.”
While some hyperscale cloud providers may be able to compete with the major chipmakers for construction labor, industry insiders said the majority of data center operators will be left looking in from the outside in places like Phoenix and Columbus.
“Even if you’re one of the larger colocation providers, you’re not in a great position,” Shah said. “Those are big companies, but they don’t have the pocketbooks of the Googles or Microsofts.”
Data center builders are increasingly forced to bring in tradespeople and contractors from outside markets to meet their labor needs. But insiders say this practice carries risks: It can jeopardize union agreements and create quality control issues. It also adds significant expense.
“We have to sometimes incentivize people beyond just per diems and travel and good wages to get people to projects,” said Sean Mulligan, director for data centers and mission critical at PCL Construction Services. “You have to find the right people wherever they are, and you've got to give them enough incentive to say goodbye to their family, pack their bags, get in their truck, drive cross-country to wherever the project is and get set up living in a rental house or a trailer.”
Chipmakers’ impact on construction labor markets isn’t a problem that is going away anytime soon for data center developers, as legislation mandating a slew of financial incentives for semiconductor manufacturing is poised for passage with bipartisan support in Congress. The Creating Helpful Incentives to Produce Semiconductors For America Act, or CHIPS For America Act, would provide chipmakers with $52B in incentives to expand in the U.S. Its passage, experts say, would almost certainly add further strain to a labor market that is already proving to be one of the most significant impediments to growth for the data center industry.
“You're in an already-strained labor market, and you're adding to it by incentivizing people to build here,” Koerner said. “Data centers are not a small commitment, but chip fab is a huge undertaking — it’ll be a big impact.”