National Semiconductor to Cut Output, Freeze Pay

Retrenchments spread further in the depressed semiconductor industry Thursday as National Semiconductor Corp. announced plans for a two-week halt of all U.S. production in February. Another shutdown was tentatively set for April and pay levels were temporarily frozen.

National blamed the cutbacks on weak orders for semiconductors “almost across the board.” The company said it doesn’t yet know how many of its 12,000 U.S. workers will be affected, but it is believed to be at least half of them.

At least 4,750 of its 9,500 employees in Santa Clara, Calif., will be idled, a company spokeswoman said. She said it isn’t certain how many of its workers at production facilities in Danbury, Conn.; Latham, N.Y., and Salt Lake City will be affected.

The retrenching at National was the latest in a string of belt-tightening actions in the semiconductor industry that executives and analysts blame in large part on undue optimism by customers.

Working Off Inventories

They say personal-computer, office-automation and other firms ordered far more semiconductors last year than proved necessary when sales fell short of expectations.

Now, the semiconductor producers say, those firms are working off their inventories of semiconductors and other parts. As a result, new orders for semiconductors have fallen sharply for several months.

The National Semiconductor Assn. reported Thursday that by one key barometer--the so-called book-to-bill ratio, which represents the relationship between the dollar value of orders and the value of shipments for a given period--its member firms suffered one of the poorest months ever in December. Only $58 worth of new semiconductor orders was received for every $100 in outgoing shipments, the trade association said.

Analysts continued to argue that the slump in new semiconductor orders has reached its worst point and that the industry’s customers are on the verge of stepping up their orders to replenish inventories.

In fact, despite the company’s announcement, National Semiconductor stock rose $0.375 per share to close at $12.125. Shares in some other semiconductor makers rose as well.

But for the moment, with prices continuing to soften, it is advantageous for customers to order their semiconductors in small lots in anticipation of still lower prices, said Dean Witter analyst Jack Geraghty.

That situation can change quickly when inventories get too low “and they get scared,” Geraghty said.

“If you’re a purchasing agent, why should you place any big orders now?” he asked.

In addition to closing Feb. 11 to 24, National Semiconductor said it will close April 1 to 14 “if market conditions continue.”

But analyst Geraghty gave the company a 75% chance of avoiding a second shutdown. “It’s probably bottoming out now,” he said.

Geraghty and Paine Webber analyst Michael Gumport said they expect National Semiconductor to report losses of “a few cents” per share, or less than $1 million, for its current quarter, on the heels of a 36% earnings decline to $8.5 million in the quarter ended Nov. 30.

It is the only major semiconductor firm thought to be losing money, but should return to profitability in the next quarter and earn about $14 million for its fiscal year ending May 31, Gumport said.

The analysts said National lacks the buffer of diversified operations enjoyed by such semiconductor makers as Texas Instruments Inc. and Motorola Inc., whose other products can offset poor semiconductor sales. On semiconductors, said Gumport, “they’re all extremely depressed, and I expect them all to come back.”

In addition to the closings, National said it is deferring merit pay raises for six months for all employees. Already, there is a virtual hiring freeze in effect and capital spending has been slowed, said spokeswoman Linda Baker.

In December, Texas Instruments announced layoffs for this month of 2,000, mostly in Texas, because of weak semiconductor sales. Honeywell Inc. laid off 1,000 California employees of its Synertek semiconductor subsidiary and said it was trying to sell the unit. Other firms have taken less drastic cost-cutting steps.