Why Phoenix Became a Hot Spot for Tech Companies

While cities like Austin, Texas have garnered attention for drawing tech companies away from Silicon Valley, another hub is emerging as a major power player — Phoenix, Arizona. The fifth largest U.S. city has been a longtime hub for aerospace and defense, and it's now becoming an epicenter of semiconductor manufacturing and autonomous vehicles.

The Rise of the Silicon Desert

Phoenix's transformation into a tech powerhouse didn't happen overnight. It's been a decades-long journey, rooted in the city's strategic location and business-friendly environment.

The story begins in the aftermath of World War II, when the federal government mandated that sensitive assets could no longer be located on the coasts. This opened the door for Phoenix to attract technology companies, and the city's federal delegation went after a number of them. One of those companies was Chicago-based Galvin Electronics, which ultimately relocated to Phoenix and grew into what we know as Motorola, becoming one of the largest employers in Arizona with 22,000 people.

In the 1950s, GE Computing, which was located in Syracuse, New York, also made the move to Phoenix. And in the early 1970s, a little startup company called Intel, which was working on semiconductors in Santa Clara, California, was brought to the city by the same delegation. Since then, Phoenix has seen over 80 semiconductor companies set up shop.

The defense industry, in particular, has had a major presence in the city. Companies like Raytheon, Northrop Grumman, and Boeing have all established a significant footprint, but Honeywell has been one of the largest players, with its aerospace division headquartered in Phoenix. Honeywell's human carry drone division, military drone division, and delivery drone division are all being conceived of in North Phoenix.

A Favorable Business Environment

Phoenix's rise as a tech hub can be attributed to several key factors, the first of which is a favorable business environment. The city has long been known for its pro-business policies, low taxes, and streamlined regulatory environment, making it an attractive destination for companies looking to expand or relocate.

Another crucial element is the ecosystem of other tech companies that have already established a presence in the area. As CNBC reported, "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."

The Semiconductor Boom

The semiconductor industry has been a particularly strong driver of Phoenix's tech growth. It all started with Intel, which established its first fabrication plant in the city in the 1980s and has since invested over $30 billion in the metropolitan area, employing around 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. The company's continued investment in the region has made it an even more attractive destination for other semiconductor players.

But the real game-changer for Phoenix's semiconductor industry was the arrival of Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker. In 2016, TSMC began looking to expand its chip manufacturing beyond Taiwan, and after a three-year courtship, the city of Phoenix was selected as the site for the company's first advanced chip fabrication plant in the U.S.

TSMC's initial $12 billion capital investment has since grown to a staggering $65 billion, making it one of the largest economic development projects in Arizona's history. The company's sprawling 1,000-plus acre campus in northern Phoenix includes a recently completed fab manufacturing 4-nanometer chips, with two additional fabs under construction that will make more advanced 2-nanometer chips and beyond.

The arrival of TSMC has also attracted a wave of supporting suppliers and vendors, with 40 companies from Asia and Europe investing in the region to be closer to the semiconductor giant. This is creating thousands of additional jobs and billions in further investment, cementing Phoenix's status as a semiconductor powerhouse.

A Sandbox for Autonomous Vehicles

In addition to semiconductors, Phoenix has also become a hub for autonomous vehicle testing and development. Over the years, companies like Uber, Cruise, and Waymo have all tested their self-driving vehicles in the city, taking advantage of the favorable weather conditions and well-structured road network.

As CNBC reported, "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, has been the biggest player in the autonomous vehicle space in Phoenix. The company began testing its vehicles on the city's streets back in 2017 and has since launched its commercial robotaxi service, which now operates across 315 square miles in the region.

In fact, Phoenix is now the largest market for Waymo's robotaxi service, with the company operating the "first airport in the world that you can be picked up or dropped off in a fully autonomous experience."

Drone Delivery Takes Flight

While autonomous vehicles have been a major focus, Phoenix has also become a hub for another cutting-edge technology: drone delivery. In November 2022, Amazon received regulatory approval to launch its Prime Air drone program in Tolleson, a suburb in west Phoenix.

As CNBC reported, "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."

Amazon's drone delivery program has been a long-time focus for the company, which first unveiled plans for the concept more than a decade ago. The company's new Prime Air Drone Delivery Center in Tolleson is set up to handle hundreds of deliveries per day, with a fleet of custom-designed drones that are quieter, more cost-effective, and can fly twice the distance of previous models.

The launch of Amazon's drone delivery service in Phoenix is a significant milestone, not just for the city, but for the broader adoption of this technology. As the company scales up its operations, it could pave the way for drone delivery to become a more common sight in cities across the country.

A Talent Pipeline for the Future

The boom in tech activity in Phoenix has also created a wealth of high-paying job opportunities, with the average wage for a tech job in the city rising from $30,000 in 2014 to $84,000 at the end of 2023.

This has been a boon for local universities, particularly Arizona State University (ASU), which currently has 30,000 engineering students on campus and is the largest producer of engineers in the country, graduating over 7,500 each year.

The demand for skilled workers has been particularly acute in the semiconductor industry, where companies like TSMC have struggled to find the necessary talent. To address this, TSMC has taken several steps, including:

Sending 600 engineers to train in Taiwan since the start of its Arizona fab
Bringing in experts from its headquarters on temporary three-year assignments
Partnering with the city to create the country's first registered apprenticeship training program in semiconductor technician

These efforts, combined with the pipeline of talent from ASU and other local universities, are helping to ensure that Phoenix has the skilled workforce needed to support the continued growth of its tech ecosystem.

The Future of the Silicon Desert

As Phoenix continues to cement its status as a tech powerhouse, the city's leaders are already looking to the future. The Greater Phoenix Economic Council has been working closely with TSMC to conceptualize a science and technology park that will meet the needs of the company and its partners, and this project is set to break ground in early 2025.

At full buildout, the tech park is expected to create around 62,000 jobs, further solidifying Phoenix's position as a hub for semiconductor manufacturing and related industries.

But the city's tech ambitions don't stop there. As CNBC reported, "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."

With its favorable business climate, strategic location, and growing talent pool, Phoenix is poised to continue its meteoric rise as a tech powerhouse in the years to come. From semiconductors and autonomous vehicles to drone delivery and beyond, the "Silicon Desert" is just getting started.

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