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Aug 18, 2023

Round Rock OKs $1.25M in incentives for Toppan Photomasks expansion

Toppan Photomasks, which makes a key component used for semiconductor manufacturing, is growing its Central Texas facility after the city of Round Rock approved a $1.25 million incentive package. The

Toppan Photomasks, which makes a key component used for semiconductor manufacturing, is growing its Central Texas facility after the city of Round Rock approved a $1.25 million incentive package.

The agreement was announced on April 27 following two separate meetings from the Round Rock City Council, and the city’s transportation and economic development corporation, which both approved the incentive package. On Tuesday, the company confirmed to the American-Statesman that it had started phase one of its expansion project.

Toppan, which makes photomasks, a key component in semiconductor production, is a subsidiary of Japan-based Toppan Inc., a company that spans multiple industries. Photomasks are opaque plates with transparent areas or holes designed to allow light to shine through in a specific pattern to help create semiconductor chips.

Last year, Toppan announced it was carving out its semiconductor business to spin off Toppan Photomask as its own company, with a Round Rock headquarters and other locations in Japan, Germany, France, China, South Korea and Taiwan. The products are used by companies including Samsung and Texas Instruments.

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According to documents filed with the city, under the agreement the company will overhaul and expand its Round Rock facility in three phases through the end of 2029. The proposed $185 million expansion would also add at least 50 jobs, growing the company’s Round Rock headcount to nearly 300 employees. The new jobs would have a starting salary of at least $70,000, according to the incentive agreement.

Toppan already has 231 workers in Round Rock, making it Williamson Couty's 25th largest private employer, and has had a presence in the city since 1986. The company also is part of a growing semiconductor ecosystem in Central Texas that includes Samsung, NXP and Infineon. Other major tech companies with presences in Williamson County include Round Rock-based Dell Technologies and Apple.

In the announcement, Round Rock Mayor Craig Morgan said he is glad to see the company expand in the city.

“This economic development agreement represents a significant investment in our community including new job opportunities, while also reinforcing Round Rock’s reputation as a hub for cutting-edge technology,” Morgan said in a statement.

In a statement, Toppan President John Nykaza thanked the city and the Round Rock Chamber, saying they, along with the community, are vital partners to Toppan’s growth in Central Texas.

“That support allows Toppan Photomasks to add much-needed capacity to meet the needs of consumers and enhance our capabilities to advance the growing U.S. semiconductor industry and bring manufacturing back to the U.S.,” Nykaza said. “I’m excited by the role our Round Rock employees play in the needed growth of U.S. based semiconductors. We look forward to that growth continuing as we service the growing U.S. semiconductor industry.”

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According to city documents, the expansion plans call for about $28 million in real property improvements, such as improvements related to design, new construction rehabilitation, as well as $157 million in business property investments such as equipment costs.

As long as the company meets its end of the deal, the Round Rock Transportation and Economic Development Corp. would give Toppan economic incentive payments totaling $1.25 million through the city’s "Type B sales tax fund," delivered in three payments, according to the documents. The payments are based on performance-based milestones. The agreement also includes “clawback provisions” if the company does not meet its obligations.

According to the city documents, the first phase — which the company has already started and is scheduled to be completed by the end of 2025 — calls for a $52.8 million investment and would add 24 employees. Under the agreement the city would pay $600,000 after the phase is completed. Phase two calls for $100.1 million in investments and an additional six employees by the end of 2028 and would lead to a $150,000 payment from the fund if completed. Phase three would be completed by 2029 and include the remaining investment and result in 281 employees total. Following phase three, the fund would pay out $500,000.

The agreement comes about a year after the company tried to pursue a different incentive agreement that it said would allow it to expand in the city. In May 2022, the Round Rock school district declined to approve a Chapter 313 application, a larger proposed expansion project that would have added 250 jobs. It represented a rare denial for the Chapter 313 program, which refers to a section of the tax code that allowed school districts to grant property tax breaks for economic development projects.

The incentive tool was phased out last year but helped draw a number of projects to Austin in the past, including semiconductor maker Samsung, which has a facility in Austin and is building a $17 billion project in Taylor, both of which received 313 agreements.

The city's announcement on April 27 also mentioned that Toppan had evaluated other locations nationally and worldwide before landing on its existing Round Rock location, and said the company had been evaluating its options thanks to funding opportunities set forth by the federal U.S. CHIPS and Science Act, legislation designed to encourage companies to expand and build semiconductor manufacturing facilities in the United States.

Toppan also has been looking to grow in the semiconductor industry since it became a private company last year, and entered into an agreement with the Japanese private equity company Integral Corporation that was designed to strengthen the company's growth and competitiveness in the expanding semiconductor industry by improving costs, quality and delivery. At the time, Toppan CEO, Teruo Ninomiya said in a statement that the "new start" would bring more efficiency and service to the dynamic semiconductor market, and said the company could go public through an initial public offering as the company looks toward long-term growth.

In a statement, a company spokesperson said Toppan's expansion in Round Rock comes because of the opportunities created as several U.S. semiconductor manufacturers expand their operations in the United States in response to market growth and the CHIPS Act, and said the company considers Round Rock a key piece of its supply chain in supporting U.S. and international customers.

"The semiconductor market has been identified as a strategic industry by the U.S. and many other countries. As a result of this and overall higher semiconductor content in all products, the semiconductor and photomask markets are expected grow significantly in the next decade," the spokesperson said. "Toppan Photomask is investing to meet our customer’s needs globally."

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The expansion would come amid what is anticipated to be an unprecedented investment in the United States semiconductor industry thanks to the passage of the U.S. Chips and Science Act last year. It includes more than $52 billion in funding for companies that make computer chips, billions more in tax credits to encourage chip manufacturing, as well as tens of billions to fund scientific innovation and research. Semiconductor technology is used in everything from cellphones to cars, and the bill came amid a global shortage of semiconductors.

Industry experts expect that Central Texas, which has a strong history of semiconductor manufacturing, will be among the regions that could see significant investment from the federal legislation. Texas also has been eyeing its own state legislation that would further incentivize semiconductor buildout in Central Texas, including a bill that was introduced that would create a fund and consortium focused on the industry.