Alcoa Fires Workers as Intel Halts Orders : Labor: The action raises questions about the future of the ceramic chip cover maker as well as the direction of the industry.

From Associated Press

Alcoa Electronic Packaging, a subsidiary of the world's largest aluminum maker, on Thursday indefinitely laid off 1,200 workers and raised doubts about its future, saying its main customer Intel Corp. will no longer be buying its computer chip covers.

Intel had told Alcoa in November that it was curtailing orders as it shifts to plastic chip covers, known in the industry as "packages," rather than the ceramic type produced by Alcoa. It stopped placing new orders for chip packages from Alcoa on Wednesday.

Packages are the boxes that cover fingernail-size computer chips, making it possible to touch them and preventing them from conducting electricity outside their circuitry.

Intel said it will help Alcoa's workers find new jobs.

The workers were already on a holiday break and not scheduled to return until Jan. 3, said A.T. Posti, a spokesman at Aluminum Co. of America's headquarters in Pittsburgh.

Intel spokesman John Thompson said the company did not cancel any existing orders with Alcoa and has offered to buy its remaining inventory of chip packages.

Because Intel is the largest maker of semiconductors, its actions are widely scrutinized for what they might say about the overall computer chip market. In recent weeks, analysts have been watching for signs of slowing growth in chip sales.

But Thompson said Intel's production expectations had not changed and would not be affected by the end of its relationship with Alcoa. It has three other suppliers of ceramic packages.

"That industry is in an overcapacity situation," he said. "We don't anticipate any problem in meeting our needs."

Intel already uses plastic to cover some of chips but not yet microprocessors, which are its core product.

Half of the 1,200 Alcoa workers are temporary employees whose contracts will be terminated Jan. 3, Posti said. The company is looking at options for the rest.

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