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Rockwell to Spin Off Semiconductor Unit

TIMES STAFF WRITER

Rockwell International Corp., in a surprisingly drastic move to stem its recent troubles, said Monday that it will spin off its beleaguered semiconductor division into a separate, publicly traded company.

The Costa Mesa firm will retain its factory automation and avionics units but will slash 3,800 jobs from its remaining work force of 38,000.

While most of the job cuts will be outside California, Rockwell said it hasn’t decided if it will keep its current headquarters in Costa Mesa, where it relocated from Seal Beach eight months ago as part of an earlier restructuring.

Although the company has been plagued with problems lately--including a severe downturn in the modem chip set business, a strike at its semiconductor plant in Newport Beach and a slump at its factory automation unit because of the Asian financial crisis--the moves still stunned observers.

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“After all, the semiconductor systems division was supposed to be part of the ‘new Rockwell,’ ” said analyst Anthony Ginsberg of Fourteen Research in New York.

Indeed, until recently Rockwell had been lauded for what was viewed as a successful transition from a defense and aerospace giant into a much smaller company focused on commercial markets. Then-Chief Executive Donald Beall, who engineered the first restructuring, said it would transform Rockwell into a fast-growth electronics company.

But analysts said the recent woes underscore the perils of pitting the company’s future on inherently volatile businesses.

Don H. Davis, who took over as CEO after Beall retired in October, said the spinoff and layoffs are necessary for the company to stay competitive.

Rockwell’s automation division will absorb the brunt of the layoffs. About 3,000 jobs will be eliminated over the next several months at its Milwaukee headquarters and in Ohio.

Rockwell’s Collins avionics unit in Cedar Rapids, Iowa, will lose about 720 positions over the next few years.

But spokesman Terry Francisco said the unit’s Pomona plant--which has 1,000 workers--could actually grow over the long term because its work is concentrated in such faster-growing areas as aviation electronics and in-flight entertainment systems.

The remaining 80 jobs will be eliminated over the next few weeks at the Costa Mesa headquarters, which has 150 workers.

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No job cuts are expected at the Newport Beach-based semiconductor business, said Dwight W. Decker, who is currently president of the division and will be chief executive of the spun-off company.

The unit, the world’s largest maker of computer modem semiconductors, with projected sales of $1.3 billion this year, has 7,000 workers, including 2,500 in Newport Beach.

Despite the semiconductor division’s expected operating losses for its fiscal third quarter and full year, Decker said that “the long-term prospects of the business are very strong.”

The continued shrinking of Rockwell is in sharp contrast to its heritage as a hulking conglomerate that produced the B-1 bomber and the nation’s space shuttle fleet.

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Just three years ago, it was the state’s fourth-largest employer and had 82,671 workers worldwide.

The semiconductor business, once Rockwell’s fastest-growing unit, was the linchpin of the restructured concern that emerged after Rockwell sold its aerospace business to Boeing Co. for $3.2 billion two years ago and spun off its auto parts business last year.

On Monday, the company said its earnings for its third quarter ending today are expected to be 45 cents a share, 20% below the year-earlier profit of 56 cents. Sales will be about $1.7 billion, up 5% from a year ago. The earnings and sales projections for the current quarter do not include the semiconductor business or a $625-million restructuring charge.

Rockwell’s shares rose 56 cents to close at $49 on the New York Stock Exchange.

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