Western Microtechnology sells custom memory module unit

Electronic News, Feb 3, 1992

SARATOGA, Calif. -- Three months after indicating it would shutter the operation, Western Microtechnology has sold its unprofitable custom memory module manufacturing operation for an undisclosed sum.

The module division was sold to Multitech Design & Test, a privately held Santa Clara, Calif., firm that performs integrated circuit and module testing services.

The pact calls for Multitech to assume the lease of Western Micro's Santa Clara, Calif., module manufacturing facility, as well as ownership of the unit's assets, including its pick-and-place manufacturing equipment, product inventory and the division's customer list, the distributor said.

In addition, the industrial is currently negotiating the sale of another money-losing unit. "We're very, very close to completing the sale of the cable assembly operation," said Marshall Cox, chairman of Western Micro, although he declined to identify the suitor until an agreement is reached.

As reported (EN, Nov. 4, 1991), the industrial had said last fall that it planned to shutter both units by year-end. The industrial took a $2 million restructuring charge during its quarter ended Sept. 30 for the closing of the two units.

Shortly after Western Micro's disclosure it intended to close the units several potential suitors emerged. "We found out about the buyer as a result of that announcement," he noted.

Subsequently, late last month a letter of intent was signed with Multitech, followed by a final agreement a little more than a week ago, he reported.

"It's always better to sell something than to close it down," Mr. Cox said.

Meanwhile, Western Micro vice president Richard Hoff, who had overseen the unprofitable business units, has been appointed to a similar position overseeing the module unit at Multitech, Mr. Cox said.

In addition, Mr. Cox said the unit's approximately 20 employees -- who had been targeted for layoffs when the operation was due to close -- have been offered posts with Multitech.

One major rationale for dropping the module operation was the entrance of most of Western Micro's Japanese semiconductor suppliers into the custom memory module manufacturing business during the last year or so, he said.

The list of vendors now offering custom memory module manufacturing now includes a who's who in Japanese semiconductor suppliers, such as NEC, Toshiba, Fujitsu, Oki, Sony and Sharp, among others, he said.

"By definition distributors can't be competing with their suppliers. You go from a love relationship to a hate relationship very fast that way," Mr. Cox said.

Another factor was the abrupt fall of module pricing during the last several years, Mr. Cox said.

Despite growing unit orders, regularly shrinking prices meant stagnant revenues and thin gross margins -- which in turn meant consistently eluding the industrial's goals, he said.

In any case, "We gave it the old college try and we couldn't make money at it. Now I'm going back to basics" of distributing, he said. Last fall Mr. Cox had also noted "It appears we're better at distribution than we are at manufacturing."

In any case, Mr. Cox said that analysts had incorrectly predicted a booming market for the value added operations several years ago; in particular, they had not foreseen the burgeoning competition in custom module manufacturing.

The divesting or closing of the units will not affect the programming and product testing services Western Micro offers out of its Durham, N.C., facility, Mr. Cox noted.

In contrast to the unprofitable units, the North Carolina operation, which includes PLD programming, "has made money for us since we went into it 10 years ago," Mr. Cox said.

He declined to estimate a price for the cable operation, although he indicated the module division would sell for below book value.

In addition, the selling price won't offset all of the loss reported last quarter. "No, there's a real loss to be absorbed there," he noted.

However, "That loss is behind me now," he said. The proceeds from the sale(s) "won't be a major chunk (of the write-off), but any recovery is a positive at this point," he asserted.

In addition, he said although the cable assembly operation was carried out by a Mexican contract manufacturer, Western Micro's assets from the operations included sales and marketing operations, quality control, design and production control, product inventory, and the customer list.

Although he would not reveal the exact sales figure for the units, at the time the plan for their closures were announced, Mr. Cox estimated the combined revenues of the module fabricating and cable assembly operations amounted to about 10 percent of Western Micro's $88 million 1992 calendar-year sales.