Motorola to Halt Construction of $3 Bln Chip Plant as Demand, Prices Fall
Richmond, Virginia, Sept. 16 (Bloomberg) -- Motorola Inc.,
the world's No. 3 chipmaker, said it's halting construction of a
$3 billion computer-chip plant near Richmond, Virginia, because
of low prices and demand for semiconductors.
Construction will cease in ''days,'' said Scott Stevens, a
Motorola spokesman. Motorola decided not to build the plant
because '' the computer-chip market globally is in one of the
worst downturns in history,'' he said. The Richmond Times-
Dispatch first reported the halt.
Nine months ago, Schaumburg, Illinois-based Motorola said it
would build the plant in West Creek, Virginia, that was expected
to employ 2,500 people and be the company's largest investment.
Chip companies are struggling with weak demand and plunging
prices amid slower personal computer sales and economic problems
in Asia. Motorola said it will just break even in the third
quarter because of plummeting sales of semiconductors, which
account for about a quarter of its revenue.
''Given the current state of the semiconductor market, it
doesn't make sense for (Motorola) to spend $3 billion to expand
in semiconductors,'' said Gregory Geiling, an analyst at J.P.
Morgan Securities Inc., who has a ''buy'' rating on Motorola.
Motorola rose 1 3/16 to 45 1/8 in early trading.
Total sales of computer chips are forecast to fall 2 percent
in 1998 to $134.7 billion, according to the Semiconductor
Industry Association. Prices for memory chips alone have fallen
70 percent in the past year.
Jill Lawrence, spokeswoman for the Virginia Economic
Development Partnership, said she expected any halt to be
temporary. The government-created non-profit agency encourages
economic expansion in the state.
''We're just crossing our fingers,'' she said.
Plant
In December, Motorola said site preparation for the Virginia
plant would begin in the first quarter of 1998, with construction
of five buildings starting in the second quarter. Motorola had
said it expected to install manufacturing equipment in late 1999,
and that shipments of products would begin by mid-2000.
That was before the impact of the worldwide chip slump led
Motorola to issue a profit warning in July and for the second
time lower its expectations for industry-wide chip sales. It
forecast a drop of as much as 12 percent this year.
The gloomy forecast follows a plunge in Motorola's second-
quarter earnings and lower sales in its chip, paging and
satellite-equipment and cellular divisions. The company doesn't
see a turnaround in the semiconductor industry until next year as
the economic slowdown in Asia takes its toll.
Chipmakers produce everything from processors that run on
personal computers and the memory to store data to chips used in
cellular phones and satellites.
They have struggled recently with weak demand from makers of
personal computers and Asian customers. That, along with excess
manufacturing capacity at existing plants, has led chipmakers to
slash prices to get rid of oversupply.
That's hurt sales of chip-equipment makers as well.
In North America, the semiconductor-equipment book-to-bill
ratio, a closely watched gauge of the industry, fell to 0.69 in
July from a year earlier as orders for machines used to make
chips fell. A book-to-bill ratio of 0.69 means semiconductor-
equipment makers got $69 of orders for each $100 of products
shipped. |
