Cirrus Logic, Weitek report layoffs

Electronic News, March 25, 1996 by Jim DeTar

Mountain View, Calif.--Two semiconductor companies, Cirrus Logic and Weitek, reported layoffs last week amid speculation that such moves may be tied to a broader slowdown in the semiconductor market. Such speculation has been fueled by the recent back-to-back, precipitous drops in the Semiconductor Industry Association's closely-watched book-to-bill ratio (EN, March 18, Feb. 19).

Cirrus Logic said it plans to reduce its 3,500-person workforce by about 13 percent, or 455 employees, and that it has initiated a company-wide program to reduce expenses and restructure operations. In addition to restructuring charges, the company confirmed it expects to report sequentially lower revenue and a substantial operating loss in fiscal Q4, ending March 30.

This follows a similar downturn for the quarter ended Dec. 30, 1995, when Cirrus reported reduced revenues and cited "a major customer (reportedly Packard Bell, as a client of Intel) who had reduced orders for certain graphics and audio chips."

In addition, Cirrus said it also expects to reduce labor expenses substantially in the current quarter through its variable compensation program, as lower profit performance reduced bonus payments from accrued levels.

Also last week, San Jose, Calif.-based Weitek Corp. announced a reduction in workforce of approximately 20 employees, or about 30 percent of its total employment. Weitek said this is the initial phase of a previously-announced cost reduction program due to a change in the company's strategic direction and the elimination of manufacturing operations.

Interim CEO David L. Gellatly indicated the blood-letting may not be over. "The company is continuing to focus on technology licensing and the development of strategic relationships. Depending on our assessment of these opportunities, we may take additional action to further reduce costs," Mr. Gellatly said.

Weitek cautioned that "the company has not had an opportunity to fully evaluate the impact of the actions outlined above, and certain negative consequences may not be fully understood."

Meanwhile, in its most recent 10-Q report with the Securities and Exchange Commission, Cirrus noted that five shareholder class action lawsuits were filed in the U.S. District Court for the Northern District of California relating to discontinued customer orders last fall--reportedly from its customer, Intel.

"The lawsuits allege violations of the federal securities laws in connection with the announcement by Cirrus Logic on November 7, 1995 that a major customer discontinued orders for the company's graphics and audio products," the company said in the report. "The company believes that the ultimate resolution of this matter will not have a material adverse effect on its financial position, results or operations or cash flows," the company added.

Under the current restructuring, key personnel will be reassigned, Cirrus said, and the company plans to selectively recruit and hire people to accelerate new product programs, saying it will focus on "key new products that it believes will drive significant revenue growth over the next 18 months. These include advanced chip solutions for mass storage (both hard disk and CD-ROM), multimedia (2-D/3-D graphics/video and high-integration audio) and communications (high-speed modems for fax, data and Internet access)."

Cirrus also confirmed that it is proceeding with announced plans to expand the company's manufacturing infrastructure at MiCRUS, its joint venture with IBM in East Fishkill, N.Y., and at its joint venture with Lucent Technologies (formerly AT&T Microelectronics) in Orlando, Fla. In the 10-Q report, Cirrus said of the MiCRUS expansion, "This expansion is expected to be in full production in fiscal 1997 to support the migration to sub-0.5-micron process technology."

Cirrus estimates that its total financial obligations for the IBM and AT&T agreements as well as others with United Microelectronics Corp. and Taiwan Semiconductor Manufacturing Co. will be $480 million in 1997 and $240 million in the following years. "The company expects to finance 70-80 percent of these capital expenditures through equipment lease or loan financing. There can be no assurance that financing will be available or, if available, will be on satisfactory terms."