Rockwell Delays Completion of Colorado Plant

Citing a worldwide drop in semiconductor prices, Rockwell International Corp. said Tuesday it is delaying for a year the completion of a $1.2-billion silicon wafer plant in Colorado.

The Seal Beach-based company, the world’s leading supplier of modem chip sets for computers and facsimile machines, says it expects to save money by turning to outside producers for chips it cannot produce in its Newport Beach plant until prices begin rising again in about a year.

Rockwell also announced that profit in the fiscal third quarter rose 13% on a 6% increase in sales.

The semiconductor situation could add “big numbers” to profits this year because of reduced silicon chip costs, Chairman Donald R. Beall said. The delay also means that the company won’t be spending money earmarked for the plant’s completion, he added.

Much of Rockwell’s growth over the past year has come from its Rockwell Semiconductor Systems unit in Newport Beach, which posted an $83-million operating profit for the third quarter, more than double the $31 million reported last year.

The company has spent $400 million expanding production and engineering facilities in Newport Beach, and Rockwell Semiconductor profits have nearly quadrupled in the first nine months.

The decision to delay the new Colorado chip factory doesn’t signal a dip in demand for semiconductor chip sets, industry analysts said. Indeed, Beall said he expects Rockwell’s various electronics businesses, including commercial aircraft avionics, to continue to drive the company’s growth in the future.

Although profit from avionics, or aircraft navigation equipment, has been off so far this year, Beall said, the commercial aircraft industry has begun a recovery that should result in increased work for Rockwell, a major subcontractor for Boeing Co. Avionics operating profit dropped 15% in the third quarter to $45 million.

Even Rockwell’s defense electronics business, which the company reportedly would like to sell, should perk up, Beall said. He refused to comment on the company’s plans for the unit, which posted an 11% drop in third-quarter operating profit, to $29 million, from $35 million a year earlier.

There have been persistent reports for months that Rockwell wants to sell its defense electronics business and its highly profitable aerospace operations to concentrate on its automotive, factory automation and commercial electronics businesses.

All Beall would say, however, is that “the company benefits from diversity and . . . we are out scrambling very hard” for both aerospace and defense contracts.

For the third quarter ended June 30, Rockwell posted net income of $223 million, or $1.02 per share, up from $197 million, or 90 cents per share, a year ago. Sales increased to $3.5 billion from $3.3 billion.

For the first nine months, Rockwell reported that profit rose $13.7%, to $629 million, or $2.89 per share, from $553 million, or $2.54 a share. Sales for the nine months were up 12% to $9.97 billion from the year-earlier $8.9 billion.

Rockwell is one of several companies responding to the softening of prices for silicon chips by delaying launch dates for new chip-making plants.

Recently, Idaho-based Micron Technology Inc. said it would hold off equipping its new $1-billion wafer plant in Utah until prices firmed up.

It is currently less expensive for big chip users like Rockwell to hire independent chip makers--called foundries--to make their proprietary semiconductor chips because the foundries have excess production capacity, said Dale Ford, semiconductor analyst with the electronics industry research firm Dataquest Inc. in San Jose.

The extra capacity exists, he said, because most foundries had geared up to produce memory chips last year and the demand for those chips has now dropped dramatically as end users, such as personal computer makers, have slashed standing inventories to cut their operating costs.

Besides saving the money it would have spent on the new plant, Ford said, delaying completion of the Colorado factory also lets Rockwell “reduce financial risks as they introduce a bunch of new products.”

Among those new products are Rockwell chips for extended-range cordless telephones, global direction-finding systems and multimedia communications products, including computer graphics, audio and video processing equipment.