Rockwell, Western Digital drop fab deal

Electronic News, Oct 18, 1993

MOUNTAIN VIEW, CALIF. -- Rockwell International's Telecommunications business sector, Newport Beach, Calif., and Western Digital, Irvine, Calif., terminated negotiations for Rockwell to buy WD's 224,000-square-foot semiconductor wafer fab facility in Irvine (EN, Aug. 16) after they could not agree to terms on Rockwell's supply of wafers to WD.

Both companies said they have reopene discussions with other interested parties, i.e.,--WD to sell the fab and get a supply deal to its linking and Rockwell to invest in an existing fab, partner with a foundry or find another long-term capacity-building solution.

WD and Rockwell in August signed a letter of intent involving the sale of the facility which was aimed at generating cash for WD and significantly boosting Rockwell capacity for a long-range communications IC thrust.

"As thest types of talks sometims go, the parties start off with the best of intentions but then due diligence shows the deal is less financially attractive to both," said Lanny Ross, president of Rockwell's Telecommunications business segment. "Western Digital had set objectives which Rockwell was not in a position to fulfill."

Mr. Ross said the stickler with WD was not in the sale price of the facility itself but in the terms of a three-year supply agreement which the two firms were attempting to negotiate. In effect, he conceded WD wanted wafer pricing which was too low for Rockwell to accept.

The agreement in principle would have had Rockwell buying the Invine plant for about $115 million in cash plus assumption of leases associated with the facility. In addition, Rockwell would have a contract to supply WD with what WD had characterized as "a significant portion of its silicon wafer requirements" for disk drives and other products. The two companies had expected to close the deal sometime this month.

Rockwell's strategy essentially was to operate the Irvine plant as a supplement to its existing 0.8 micron process in Newport Beach but eventually migrate to lower micron sizes as it beefed up efforts to sell various commercial devices (RISC-based signal processor and other ICs) for advanced communications functions.

Rockwell's Mr. Ross last week said Rockwell's plans are not severely hampered by the demise of the WD deal (Rockwell did not to expect to fully benefit internally from Irvine production for about two years) but it was back to the drawing boards for additional sub-micron capacity. Although building a new plant is not entirely ruled out, according to Mr. Ross, it is a less attractive alternative to finding an outside foundry, a foundry partner or similar investment. Neither company disclosed indentities of the respective parties to whom they have sent feelers or with whom they may have opened new talks.

"The sale of the wafer fab is still something we intend to do," said Charles A. Haggerty, chairman, president and CEO of WD, "because of the immediate positive effect such a sale would have on our balance sheet and the reduction in future capital expenditures it would afford."

WD's imperative remains to generate cash via an Irvine plant sale. The company last week reported a net loss of $5.1 million, or 14 cents a share, on revenues of $285.5 million for Q1 ended Sept. 25, 1993 versus a net of $4.2 million, or 14 cents a share, or revenues of $271.1 million in Q1 last year. In Q4 ended June 30, 1993, it reported a net loss of $37.8 million, or $1.07 a share, on revenues of $285.2 million.

WD said it Microcomputer Products business posted revenues of $43.2 million, flat with Q4 performance and down from $46.3 million in Q1 last year. However, the company said that unit achieved "its best gross margin performance in years through manufacturing improvements and a very strong quarter in our SCSI controller chip business."

The company's disk drive business returned to operating profitability in Q1 on revenues of $242.3 million, versus a substantial operating loss in Q4 on revenues of $242.8 million. In the yearago quarter, disk drive revenues totaled $224.8 million.

The Rockwell/WD arrangement is the second major industry deal to fall apart in two weeks. Discussions for Lattice Semiconductor, Hillsboro, Ore. to acquire Quick-Logic, Santa Clara, Calif., abruptly ended recently (EN, Oct 11). They had signed a nobinding letter of intent (EN, Sept. 27) but Quicklogic said it would remain an independent supplier of field programmable gate arrays.