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ADI to refocus amid fab closure, job cuts

Posted by iTech - 2005-10-20

SAN JOSE, Calif. — Seeking to cut costs and “refine” its focus on analog and DSPs, Analog Devices Inc. on Wednesday (Oct. 19) announced new job cuts, a major reorganization and a plan to shut down its wafer fab operations in California.
No jobs will be lost until the end of 2006. At that time, just under 400 people will be impacted by the job cuts, but those employees are encouraged to apply for other jobs in the company, according to ADI (Norwood, Mass.).

The company also announced it would take a $63 million charge for the actions, but it also raised its quarterly forecast due to stronger demand for analog and digital signal processor (DSPs) products in the period.

As part of the cost-cutting measures, the company plans to close its California wafer fab operations and transfer production to its two largest facilities located in Massachusetts and Ireland. When completed by the end of fiscal year 2006, the consolidation is estimated to result in savings of approximately $45 million per year.

ADI has an older 6-inch fab in Sunnyvale, Calif. It provides what it calls “post fab” capabilities in Santa Clara, Calif. The company has two 6-inch fabs in Wilmington, Mass. and a combination 6- and 8-inch plant in Limerick. It also has a foundry arrangement with Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC).

"Because of the size and limited expansion potential in Sunnyvale, we have decided to focus our investments in our other facilities," said Jerald Fishman, president and CEO of Analog Devices, in a statement.

ADI has asked the production teams in Sunnyvale and Santa Clara, to stay on with the company for the next year to assure a migration of the products to their new manufacturing locations. ADI expects the teams will complete the transfer by the end of fiscal 2006.
Analog shuffle

In addition, the company also announced a reorganization, which will provide greater focus on analog and DSP products. These organizational changes will save approximately $16 million per year once completed.

It will record charges of approximately $13 million of primarily severance related costs to accomplish this, most of which will be recorded in the fourth quarter of fiscal 2005.

Meanwhile, the fab transfer program will result in approximately $50 million of charges over the course of the next twelve months. Approximately $23 million of these charges are for employee-related costs, of which approximately $20 million will be recorded in the fourth quarter of fiscal 2005.

An additional $22 million will be recorded as a non-cash charge for accelerated depreciation and charged to manufacturing expense during fiscal 2006. The remaining costs, which include clean-up and lease termination costs, will be charged to expense as they are incurred during fiscal 2006.

As a result, the company plans to take charges of approximately $20 million in the fourth quarter of fiscal 2005, approximately $6 million in each of the first, second and third quarters of fiscal 2006, and approximately $12 million in the fourth quarter of fiscal 2006.

DSP upswing

The move represents the latest cost-cutting measure by ADI. In a move signaling the maturing state of the architecture, ADI recently announced it will close its ten-year-old Herzliya, Israel design center, the birthplace of its TigerSharc DSP architecture, within four months.

It also comes at a time when the semiconductor industry is gaining momentum after a lull in the first half of 2006. Worldwide analog and digital signal processor (DSP) shipments are up, but average selling prices (ASPs) are declining, according to analysts.

On the bright side, ADI estimates that revenue in the fourth quarter of fiscal 2005 will grow approximately 6 percent compared to the third quarter of fiscal 2005, which is higher than planned at the beginning of the quarter. Sales of both analog and DSP products are expected to increase in the fourth quarter compared to the third quarter of fiscal 2005.

It posted net earnings of $121.4 million, or 32 cents per share on sales of $582.4 million for the third fiscal quarter ended July 30. Sales declined 4 percent from $603.7 million the previous quarter, while earnings rose 3 percent from $117.6 million.

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