National Semiconductor is slated to spin off its commodity chip arm, which accounts for about a quarter of its revenues, in a bid to raise cash.
The plan is said by sources to be part of a dramatic restructuring initiated by new chief executive Brian Halla. This has already resulted in 600 job losses and the removal or resignation of 14 of Natsemi's 56 vice presidents. A further 800 job cuts are on the cards for this quarter, according to a recent filing with the US Securities and Exchange Commission.
Insiders told the 'Wall Street Journal' that Halla plans to sell or spin off Natsemi's commodity chip operations into a separate entity, under the banner of Fairchild Semiconductor. This unit will be headed by Kirk Pond, a long-serving vice president, and will take on 6,000 Natsemi employees. The spin-off will raise the cash Halla wants to invest in the custom chip business, which carries higher margins and greater resilience against market slumps. However, it will involve building advanced new factories and buying in new skills.
The focus on custom chipmaking is a high risk strategy for the company, but one that worked when Halla was second in command at its arch-rival, LSI Logic, which he propelled to the top of the custom market before leaving for Natsemi in May.
As well as freeing up funds for expanding the custom business, Halla's cost cutting is designed to make Natsemi leaner and more competitive. About 160 research projects are currently under review and many are likely to be axed. However, Halla will hold on to Natsemi's analogue chip projects, predicting this technology will be critical to digital multimedia systems. Natsemi is currently fifth in this market.
The long term aim is to build the capability to produce full customised chip systems, rather than components that are integrated by third parties such as LSI. Halla estimates it will take up to 18 months to convert the company's portfolio of often incompatible component designs to create a set of reusable elements that can be mixed and matched according to customer requirements to create self-contained chip systems.
The restructuring costs money - $275 million in first quarter charges, just for a start - but analysts agree radical action is needed. Natsemi's earnings fell 63 per cent to $29.5 million in its second quarter, ended 24 November, and its revenues slipped by seven per cent to $661.5 million. Observers also point out that Natsemi has gone through a long succession of reorganisations, totalling $660 million in charges over the past 10 years, and that Halla needs to make this the last one for many years if investors are to feel secure again.
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