From Page One of Electronic News: September 7, 1998 Issue
Far East Fallout
Japan Firms Shut U.S., U.K. Plants
By Dylan McGrath
Tokyo--The decision announced last week by three of Japan's "Big Five" chipmakers: Hitachi, Mitsubishi and Fujitsu, to close manufacturing facilities in the U.S. and Europe and to lay off employees is widely viewed as a response to the triple threats of overcapacity, unfavorable currency exchange rates and plummeting memory prices.
The American subsidiaries of Hitachi and Mitsubishi both announced significant restructuring. While Hitachi America said it would shutter its wafer fab in Irving, Texas, Mitsubishi Semiconductor America, Inc. (MSAI) announced the impending closure of its Durham, N.C. test and assembly facility and the loss of 230 jobs.
Fujitsu Microelectronics Ltd, the U.K. arm of Fujitsu Ltd., pulled the plug "as of today," (Friday, Sept. 4) on its Durham semiconductor plant in Newton Aycliffe, England, laying off 675 workers.
For Hitachi, the decision to shut down the fab was only the tip of the iceberg. In an announcement made one day later from international corporate headquarters in Tokyo, the company drastically revised its forecast for FY98 and detailed a substantial cut in spending for the fiscal year, including the elimination of 4,000 jobs worldwide. Less than six months after it predicted a net income of $160 million (EN, April 6), Hitachi is now anticipating a hefty loss of nearly $1.9 billion for the current fiscal year, which closes in March 1999.
Hitachi said it will cut about $436 million from its payroll, trim its R&D budget by about $218 million and slash its capital investment budget by nearly $1 billion, effectively freezing it for the year.
Hitachi merged its Hitachi America subsidiaries Hitachi Semiconductor (America) and Hitachi Micro Systems Inc. At the same time, it said it would shut down the Texas fab.
"The protracted slump in the DRAM business left us with no other choices," said Michael Hill, VP of operations in Irving. "The market environment has continued to decline and our facility would have required substantial investment to support non-memory leading edge technology."
"It's no secret that DRAM prices have undergone dramatic erosion during the last two years," said Gerard Corbett, a spokesman for Hitachi Semiconductor America. "It simply got to the point where the fab was running in the red. Hitachi is basically managing on a global basis, so it has taken a number of actions in recent months to cut costs."
Hitachi has disposed of or consolidated several businesses this year, including the dissolution of its TwinStar joint venture with Texas Instruments (EN, Feb. 16).
There Was Warning
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Mario Morales, manager of semiconductor research at market research firm International Data Corp. (IDC), said Hitachi's move to idle the Texas fab is not surprising. "I think Hitachi warned us a little bit when they pulled out of TwinStar," he said. "It's not only Hitachi (having trouble), it's most of the companies now." Mr. Morales said the Irving fab was an aging fab that manufactured mostly 0.8-micron and 0.5-micron products.
"This was an older facility that they were actually thinking about upgrading, but they don't have the money," he said, adding that they chose to idle the fab and hang on to it in case of an upturn rather than sell it. Mr. Morales said he does not think the loss of the fab will affect Hitachi's shipping of product to North American customers.
Meanwhile, MSAI said it would close its assem-bly/test/manufacturing operations in Durham on Nov. 6. As a result, MSAI will lay off about 230 employees, mostly production staff, along with office and support personnel. Mitsubishi already closed its fab in Durham and laid off 200 people on March 16 (EN, Jan. 19). Mitsubishi said the 230 people being let go this time around will receive severance and the company has retained the same career transition firm it retained earlier this year to assist displaced workers.
"It is sad for me to see the closing of a facility in which I was one of the participants in the start-up," said Masataka Takehara, president and CEO of MSAI, in a letter to employees. "I have known many of you for a very long time, and I will miss working with you."
At the same time, Mitsubishi announced a restructuring plan that will result in the company focusing solely on its design and engineering capabilities. MSAI's design group will be incorporated into the Electronic Device Group of Mitsubishi Electronics America in Sunnyvale, Calif. The 100 or so engineers in the design group will remain in the Durham area, Mitsubishi said, and continue to design and engineer chips for use in electronics products.
No Drastic Changes
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Dwain Aidala, senior VP and GM of the Systems Integration Division of the Electronic Device group of MSAI, said the engineers would not be performing drastically different duties. "The design group that existed has been working in the area of memory products," he said. "They have a strong microcontroller expertise, and very strong CAD capability. The group will evolve more than change."
Both Hitachi and Mitsubishi will apparently now outsource memory module assembly operations. Mitsubishi said module assembly operations that had been conducted at MSAI will be outsourced and directly managed by the Memory Division of the Electronic Device group. The company added that its module assembly operations in Japan and Germany will continue.
"The continued oversupply of DRAM into the world markets today has forced Mitsubishi Electric to make very tough business decisions," said Michael Bocian, GM of the Electronic Device Group's Memory Division. "Achieving the lowest possible discrete costs, eliminating the need for near-term investment in module capacity, and outsourcing BTO logistics through selected partners, will enable Mitsubishi Electric to continue as a memory supplier."
Celestica, an electronics manufacturing services company based in Toronto, issued a statement last week saying Hitachi has selected it to provide manufacturing services for memory module products. Celestica will begin qualifying and building product for Hitachi during 4Q98.
Mr. Corbett of Hitachi said the decision to close the Irving facility and restructure the company was unrelated to the Celestica announcement. "It was an unfortunate timing thing," he said of Celestica's announcement. "We have not firmed up any arrangements."
Fujitsu, meanwhile, scheduled the U.K. closure to take place in December with the process of giving notice of redundancy delivered last Friday.
"The decision to close the Durham plant is a painful one, and we do so soberly and with sincere concern for those who will be affected," said Takamitsu Tsuchimoto, executive VP and head of Fujitsu's electronic devices group, of which FML is a part.
"We would like to stress that the decision was in no way influenced by the economic climate in the U.K. The critical issue for the facility at Newton Aycliffe was the state of the memory market internationally."
Fujitsu's Rationale
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Fujitsu gave sobering witness to the DRAM dilemma in a statement describing its reasons for the Durham plant closure:
"Since the end of 1995, semiconductor memory prices have suffered unprecedented declines, brought by severe overcapacity. For example, 16-megabit DRAMs selling for $45 at the end of 1995 are now priced at about $1.50, and 64-megabit DRAMs fetching $30 in the first half of 1997 have suffered a more than 70% price decline in the space of just a year. With no end in sight to this debilitating DRAM price erosion, the company determined that it must restructure its memory business strategy and production structure, a process that unfortunately requires the closing of the Durham plant."
Fujitsu said it is working with the Department of Trade and Industry (DTI) and the Northern Development Company, a branch of Invest in Britain, to identify potential buyers by the end of February 1999. The plant will be maintained on a care and maintenance basis until February 28, 1999, while a suitable buyer or partner is sought.
Opened in Sept. 1991, with an initial investment of 200 million pounds, Fujitsu's Durham plant began operations with production of 4-megabit DRAM chips and undertook a major expansion program that included a shift to 16Mb DRAM production. The total capital and labor development investment amounted to more than 350 million pounds.
Fujitsu said it will concentrate additional resources on the development of logic devices in the U.K. It will maintain and expand the R&D facilities in Manchester and Maidenhead, Berkshire that were established before the opening of the Durham plant |
