Rockwell Takes Knife to Its Chip Business
Rockwell International Corp. said Monday that it will cut nearly 900 jobs, close its Colorado Springs, Colo., manufacturing facility, and take a fourth-quarter charge of $265 million as it prepares to shed its money-losing semiconductor division.
Analysts say the cuts, though painful, are necessary if Costa Mesa-based Rockwell is to be able to spin off its troubled unit.
“They are stuck in a really difficult spot and, so far, things are not getting better,” said Jim Feldhan, president of Semico Research Corp. “Right now the market is so volatile that Rockwell’s got to make that unit as lean and mean as possible if the spinoff’s going to work.”
Investors apparently liked the news, pushing Rockwell shares up $2, or 5%, to $40.56 in New York Stock Exchange trading.
All of the layoffs will come at Rockwell’s semiconductor unit, the world’s biggest maker of chips used in computer telephone modems, which has a worldwide work force of nearly 7,000. About 200 jobs will be eliminated in Orange County at the company’s Newport Beach factory.
The remainder will come from Colorado Springs and other locations. About 150 contract jobs will be eliminated, and about 100 employees are expected to take early retirement, Rockwell officials said.
Don Davis, Rockwell’s chairman and chief executive, said the plan for its semiconductor unit called for cutting annual operating costs by more than $200 million on a pretax basis and downsizing its operations.
The company will record $180 million in charges for restructuring the unprofitable unit, $55 million for losses for the fiscal fourth quarter and $30 million for losses and other write-downs anticipated for the first quarter of fiscal 1999, which begins Oct. 1. The losses stem from a softening demand for PC modems, as well as increasing pricing pressures, analysts said.
“We never expected the reduction in our work force would have to be this large,” said Dwight Decker, president of Rockwell Semiconductor Systems. “The two biggest problems we face are the troubles in our core modem business and the recession of the semiconductor world as a whole.”
Analysts have long pointed to the semiconductor industry, a notoriously cyclical arena, as a good indicator of what’s to come for the rest of the technology world. The Asian financial crisis is seen as the main culprit in the growth slowdown, because many U.S. firms sell their products in the hard-hit Far East.
In June, Texas Instruments Inc. said it would eliminate 3,500 jobs and sell its troubled memory chip business. Fremont, Calif.-based Lam Research, a semiconductor equipment manufacturer, announced it would cut 1,800 jobs. And National Semiconductor Corp. said it would require employees to take vacation during the company’s next fiscal quarter, which ends in November. The Santa Clara-based firm, which announced the cutback of 1,400 jobs in April, said the more recent cost-savings move was designed to reduce the need for further layoffs.
Though industry watchers applauded Rockwell’s move on Monday, they warned that the timing of the company’s additional cuts could backlash against its troubled chip unit.
In June, Rockwell announced plans to cut 3,800 jobs, primarily in its struggling automation business, and spin off the volatile semiconductor unit to shore up lagging profits.
“They need to have solid earnings and they need to have people ready to move forward once the spinoff happens,” said Lisa Pelgrim, a senior analyst with Dataquest. “But the layoffs and closing a facility is going to have a negative effect on company morale. It’s going to be a challenge to get everybody pumped about the new Rockwell.”
