Motorola Va. plant on hold Firm halts building on $3 billion project due to chip slump


September 17, 1998|By BLOOMBERG NEWS

RICHMOND, Va. -- Motorola Inc., the world's No. 3 chip maker, said yesterday that it is halting construction of a $3 billion computer-chip plant near Richmond, because of low prices and slumping demand for semiconductors.

Construction, which was delayed once before amid a 1997 chip-market decline, will stop within days and be halted indefinitely. The West Creek, Va., plant would have employed as many as 5,000 people, and made high-performance chips for pagers and hand-held computers.

Chip makers are struggling with weak demand and plunging prices amid slower personal computer demand and economic problems in Asia. Motorola, which gets a quarter of its revenue from computer chips, will just break even in the third quarter because of plummeting semiconductor sales.

"Given the current state of the semiconductor market, it doesn't make sense 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 $3.3125 to close at $47.25. Its shares have been battered this year amid repeated profit warnings. Last October, Motorola traded as high as $75.1875.

"What the semiconductor market needs are shutdowns," said Chris Chaney, an A.G. Edwards analyst, who rates Motorola "maintain."

The West Creek plant would have been Motorola's largest investment ever, but the company "is pretty aggressively looking at exiting some of their semiconductor businesses," analyst Geiling said.

The company has a venture with Germany's Siemens AG in Richmond. The $1.5 billion White Oak memory chip plant opened in 1997 and "has been losing a lot of money," Chaney said.

Motorola and Siemens also unveiled plans in January to invest at least $830 million in a venture in Dresden, eastern Germany, to make memory chips using a new 300-millimeter format.

Though Siemens is looking for ways to cut capacity and has said it will close some factories, that venture with Motorola won't be affected, Siemens spokesman Thomas Weber said.

Motorola unveiled its ambitious plans for rural Goochland County, Va., home to 17,000 people, in April 1995. Construction was set to begin in 1996, with semiconductor production starting this year.

A chip slump and too much capacity in the industry in 1997 forced Motorola to shelve its plans, which had progressed to bringing in building materials and sinking pilings.

Motorola revived the project at the end of 1997 and the company resumed shipping materials to the site this spring. The company had expected to install manufacturing equipment in late 1999, and had said shipments of products would begin by mid-2000.

In June, Motorola said it will slash its work force by 10 percent, or 15,000 jobs, as the Asian crisis and its own missteps with digital cellular phones slashed profits. In July, the worldwide chip slump led Motorola to reduce its expectations for industrywide chip sales for the second time. The company now is expected to earn a penny a share in the third quarter, according to First Call Corp., compared with 54 cents a year earlier.

Pub Date: 9/17/98

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