Workforce, spending cuts 'painful' for equippers

Electronic News, Sept 2, 1996 by Judy Erkanat

Mountain View, Calif.--The current semiconductor industry downturn continued to impact the capital equipment business last week when Lam Research, Teradyne, Tegal and Unit Instruments all announced layoffs.

Lam's 11 percent workforce reduction was accompanied by company-wide restructuring under which it is consolidating its business units into two functional organizations. The company's etch and deposition product lines will now have separate engineering groups, with a centralized marketing department consolidated from a previous five.

Approximately 310 regular and 240 contract positions were eliminated as a result of the organizational changes, with most of the affected regular and contract employees located at the company's Fremont, Calif., headquarters.

Lam plans a pre-tax restructuring charge to earnings in the $11-to-$12-million range, or 25 to 28 cents per share, fully diluted, in the current, first quarter of fiscal 1997.

"We took a look at our business and into the future four quarters and asked what level of operations we could sustain based on current data and still support a profitable business operation. To meet the needs of the company, we ended up resizing," said Bob Fink, senior VP of corporate services at Lam. "This should do it for the next year. Based on what we know now, this should put spending at the correct level to meet shareholder expectations."

"Current and projected market demand for our products during this industry downturn requires Lam, as a billion-dollar business, to take the actions necessary to preserve ongoing profitability," said Roger D. Emerick, chairman and CEO of Lam. "This organization will enable Lam to align near-term expenses to prevailing market demands and provide the resources necessary to meet our customers' needs for next-generation products, and Lam's goals for long-term growth and profitability." Things were not any better on both coasts for automatic test equipment supplier Teradyne. The company is reducing its workforce by approximately 300 people, including regular employees, temporary employees and contractors. The affected people were notified beginning last Wednesday and will receive extended benefits based on length of service, as well as outplacement assistance, Teradyne said.

CFO George d'Arbeloff commented, "It's obviously very painful for us. We stopped our expansion in the fourth quarter of 1995; we could see then things were getting soft. It was just necessary to cut back." He added that no particular sector made the decision, Teradyne was working with a "general softness."

Approximately 175 of those being dismissed are in Boston, while the remainder will be dismissed from Teradyne's West Coast operations, in Agoura Hills, Walnut Creek and San Jose, Calif. As a result of the reduction in the workforce, Teradyne expects to take an estimated $10-12 million pre-tax charge, or about 7-8 cents per share after-tax, in the last half of the year, though the total amount and timing of the charges are subject to a number of uncertainties, it was said.

In Petaluma, Calif., plasma etch system producer Tegal announced it will decrease its global workforce by approximately 12 percent.

"In the six years since the Motorola spin-off, Tegal had some layoffs under the previous management team, but this is the first under current management," explained Dave Curtis, VP of finance and administration and CFO for Tegal. "This layoff was driven exclusively by excess capacity in the industry. Like everyone else, we have experienced a fall in equipment orders for fab capacity expansions and had to downsize to accommodate the foreseeable future."

The company took a number of measures to accommodate industry cutbacks. Besides the layoff, Tegal halted all hiring, put a freeze on all wage and merit increases and plans plant shutdowns the week of Thanksgiving and the last two weeks of December. Tegal has also curtailed discretionary spending, based on a visibility of this and next quarter.

"We anticipate a 25 percent decline of revenues for this quarter ending in September, with flat revenue prospects likely for as long as four quarters," said Mr. Curtis. "We will reevaluate the situation every 90 days. These actions are intended to maintain modest quarterly revenues and fund new product development efforts so we can keep pursuing our business strategy. There is no indication that our semiconductor customers have bottomed out as of yet."

"The semiconductor capital equipment industry has experienced a slowdown of orders due to excess capacity and that slowdown is also affecting Tegal," said Robert V. Hery, Tegal's chairman, president and CEO. "As a result, Tegal has found it necessary to adjust its employment to its current level of business. A reduction in force is a painful decision to make, but a necessary one in light of the current outlook. Given this outlook, we expect quarter-to-quarter revenues and earnings to decline below current analyst estimates, beginning this quarter and that these declines will be commensurate with what is happening in the industry as a whole."