National floats foundry plan in retreat from Scotland

GREENOCK, Scotland — The U.K.'s strategy for attracting investment for semiconductor manufacturing seems to be unraveling under pressure from continuing weakness in the global semiconductor market. National Semiconductor Corp., one of the first investors into "Silicon Glen" in the mid-1970s, is the latest company to announce plans to cease chip manufacturing in the U.K.

National said it will close its old 4-inch wafer fabrication facility here, but plans to set up an independent analog foundry that will take ownership of National's separate 6-inch fab. Both the 4-inch Fab 1 and the 6-inch Fab 3 run bipolar and CMOS processes and make predominantly analog ICs.

National said it is currently seeking investors to realize its plans for an analog foundry, and pointed to its previous experience with fab sales — to Fairchild Semiconductor in 1997 and to Tower Semiconductor in 1993 — as evidence of its potential for success. National also said it would be willing to place part of its manufacturing orders for analog circuits with the foundry.

The closure of Fab 1 will result in the loss of 600 jobs as National reduces employment here from 1,000 to 400, starting in March 1999. The consolidation of manufacturing at Fab 3 is expected to take another 12 months after that.

National didn't state a deadline for spinning off Fab 3, but said its announced changes would not affect its design center here, which employs 40 people.

National blamed continuing weakness in the global semiconductor market for the need to pull back in Scotland. That weakness has resulted in underutilization of many of the company's wafer manufacturing sites around the world, excluding its new 8-inch, 0.25-micron facility in South Portland, Maine, which is operating at full capacity, the company said.

"We currently have the equivalent of one factory too many to meet the business level of the next four to five years," said Brian Halla, president and chief executive officer of National Semiconductor (Santa Clara, Calif.). "The decision to consolidate our operations at Greenock and seek investors to operate the facility independently is a direct result of continuing softness in the semiconductor market and of factory utilization rates below 50 percent. We believe our restructuring plans for Greenock offer the best prospects to ensure continuation of manufacturing operations there and to preserve the employment opportunities of the greatest possible number of current employees."

Eddie Gemmell, an industry analyst with Dataquest Europe (Egham, England), said, "Fab 1 opened 21 years ago, so it has probably fulfilled its natural life. It's understandable that there's nervousness about current investment. It makes sense to close your least-competitive wafer fab."

National's move follows those of Siemens and Fujitsu, each of which has announced plans this year to cease manufacturing at their wafer fabs in northeast England. In addition, LG Semicon has put its plans to build a fab in Newport, Wales on hold indefinately, and Hyundai has similarly frozen plans to build a facility in Dunfermline, Scotland.

Gemmell was dubious about National's chance to successfully complete its foundry and outsourcing plan. "The foundry market is also in overcapacity and we predict it will be for the next couple of years," he said. "If the fab was competitive they would hold onto it.

As a result of the restructuring, National said it will take an additional one-time charge of about $25 million in the current fiscal quarter ending Nov. 29.