National to spin off logic

Electronic News, June 24, 1996 by Christa Hardie

Santa Clara, Calif.--In the latest move to refocus on its core analog business, National Semiconductor will spin off its logic and memory group into an independent subsidiary. In doing so, National also invoked the spirit of an old Silicon Valley ghost, naming the new company Fairchild Semiconductor.

Fairchild is considered the grandfather of Silicon Valley, having at some time employed many of the people who went on to found or lead some of the semiconductor industry's most prominent companies, including Intel, Advanced Micro Devices, LSI Logic and National Semiconductor.

"We chose to revive the Fairchild name, in fact, because of its strong heritage in logic," said Kirk Pond, who will be chief executive of the new company. The sole survivor of National's former office of the president since Brian Halla was named to head National, Mr. Pond also ran the logic business of the original Fairchild Semiconductor, which National purchased in 1987 from Schlumberger.

Meanwhile, the sentiment of resurrecting the old Fairchild name may be lost on one Fremont, Calif., company. Fairchild Technologies USA (a semiconductor equipment vendor formerly known as Fairchild Convac USA)--part of Fairchild Corp., headquartered in Chantilly, Va.--is taking a hard look at National's right to use the name. According to a spokeswoman for the company, corporate attorneys are studying the details of National's acquisition of Fairchild Semiconductor to determine whether legal action is warranted.

A week ago, National repartitioned seven business units into four: analog, communications and consumer, personal systems and the logic and memory business that will become Fairchild Semi (EN, June 17). A piece at a time, Mr. Halla is dropping hints at his new strategy for National, which he is expected to announce this summer.

"In creating this new structure," Mr. Pond said, "our primary consideration will be to maintain excellent support of our customers. To that end, we will be careful to ensure a smooth transition of sales and service channels from National to Fairchild."

The new Fairchild represents approximately 25 percent of National's $2.6 billion in annual revenues, according to the company. National will take a pre-tax, one-time charge of $280 million to $320 million in fiscal 1Q97, equivalent to an after-tax charge to earnings per share of $1.58 to $1.79. The company is also looking at ways to finance Fairchild, which will remain privately held for the near future; however, the company declined to say how much money it will try to raise.

National said it has no plans at this point to either sell off Fairchild Semiconductor or spin out any of the three remaining business units into independent entities, although the possibility was not ruled out.

So far, the revival of Fairchild received mixed reviews from industry observers.

"The first thing that struck me is Brian Halla is making bold moves very quickly. If there was any thought in people's minds that National's turn-around was not completed by Gil Amelio, I think those thoughts have been put to rest," said Mel Thomsen, a principal and co-founder of Pathfinder Research.

"To me, it makes a lot of sense to spin that part of the business out. Ostensibly, it was done so each group can develop its own strategy. Anyone who knows Brian Halla knows this is consistent with his style of staying on the leading edge of things," he added.

One of National's logic competitors was not so bullish on the spinoff.

"I think they should call it 'Frogchild'," said Jerry Sanders, chairman and CEO of AMD, who said he feels no sentimental twinge about the revival of his old stomping ground. "In fairy tales, a kiss from a princess turns a frog into a prince. But in real life, a princess might kiss a frog, but it remains a frog--in this case, a well-dressed frog.

"That they're taking a $320 million charge blows my mind--that's more than half of the retained earnings of National since its inception," he remarked.

Fairchild's product lines will encompass mainly commodity parts, including all of National's bipolar, BiCMOS and low-power CMOS logic families, EPROMs, EEPROMs and application-specific flash, as well as its discrete transistor products.

Pat Brockett, National's executive VP of worldwide sales and marketing, said separating the commodity business from National's other more specialized technologies will allow both groups to focus on their specific marketplaces.

"It's been much like a sack race, with two legs from two separate bodies tied together. We're essentially kicking the sack off so both legs can run," Mr. Brockett explained. The goal now is to raise National from its third-place ranking in analog to number one, and the same for the logic business under Fairchild, which is currently the number two logic supplier.

National's financial growth has been stunted for several quarters, leading the company to take a number of cost-cutting measures that included delaying the ramp of its 200-millimeter (eight-inch) wafer fab in South Portland, Maine (EN, March 11). Mr. Brockett said, "Without the Fairchild business, National's gross margin would have been 3 percent higher on $2.6 billion gross last fiscal year--a heap of change."