Texas Instruments to Cut 3,200, Sue Rival

Texas Instruments released two pieces of bad news Thursday, announcing that it will cut 3,200 jobs and will take Fujitsu Ltd. to court after failing to reach a patent agreement.

The big chip maker, which has struggled for several years in the face of intense competition in its core business, said the cuts in its 68,800-strong work force will take place through a combination of early retirement and layoffs.

TI also announced a second-quarter loss of $157 million on revenue of $1.69 billion, including a $130-million restructuring charge to cover the layoffs and other cost-cutting measures.

The lawsuit against Fujitsu represents a setback in TI’s effort to boost royalty income from computer chip patents, a major source of revenue for the Dallas-based company. Fujitsu became the first major chip vendor to challenge TI’s rights to royalties on a far-reaching basic chip patent. The challenge could make it more difficult for TI to strike royalty agreements with other companies.

Texas Instruments holds a number of basic chip patents, and in 1989 the Japanese Patent Office awarded it a far-reaching patent on the basic concept of the integrated circuit, known as the Kilby patent. Since then, TI has reached broad licensing agreements with several Japanese chip vendors--including Toshiba, NEC and Oki--that have helped push royalty revenue to $300 million per year.

But Fujitsu refused to accept TI’s licensing formula, which calls for a royalty on all chip sales. In an unusual arrangement, the two companies struck a cross-licensing agreement that allows them to use each others’ technologies but also to go to court in Japan over the broader Kilby patent claims.

TI Senior Vice President and General Counsel Richard J. Agnich said the partial agreement would protect TI from any possible patent suit by Fujitsu, clearing the way for legal action in Japan that would be limited only to the applicability of the Kilby patent.