VLSI to construct 200mm Malaysia fab

Electronic News, Nov 25, 1996 by Peter Brown

San Jose, Calif.--VLSI Technology has signed a memorandum of understanding to build a 200-millimeter (eight-inch) fab in Malaysia, Electronic News has learned. VLSI would be the second company to construct a fab in the Asian country--InterConnect Technology signed an agreement earlier this year to build a $1.2 billion, 0.35-micron facility which will begin operation in 2Q98 (EN, Aug. 12).

VLSI may need another fab, as the company last week made the decision to terminate IC production in its San Jose fab--taking a 4Q96 charge of between $100 million and $120 million and imposing a workforce reduction of 300 people, approximately 10 percent of VLSI's employees.

"The fab is underloaded. We have taken a number of steps to get it to a point where it would be at full capacity, such as possibly using it as a foundry, and a number of other things. But nothing has worked," said Alan Markow, VP of marketing for VLSI. "This is not a leading-edge fab for us. It produces wafers at 0.5 (micron) and above. Our customer designs are running at 0.35-micron and below. So we won't effectively be able to run that fab without having it be a drag on our overall operations. It's not equipped for the strategic focus of our company."

VLSI expects it will take approximately 12 months for the company to completely stop production in the fab, unless a buyer for the facility is found earlier. However, the company will not be in the fab by the end of 1997, regardless if it is sold or not, Mr. Markow said. In the meantime, capacity at VLSI's San Antonio, Texas, fab will be stepped up, compensating for this year-long shutdown.

The 4Q96 charge between $100 million and $120 million is the result of having to retire the equipment that has no value to VLSI, because it is outdated, Mr. Markow said. The equipment portion is approximately 90 percent of this charge, while the remaining 10 percent is the cost for the reduction in its workforce, he added. VLSI said it has no plans to reduce any more of its workforce in the future.

Separately, the Chicago Board Options Exchange is conducting an investigation into options trading on VLSI's stock last Thursday. The stock rose 22 percent that day, apparently unaccountably, as the company waited until after the trading day was done to announce the fab closing and charge. An exchange spokesman said it was a "routine review," given the heavy volume of trading that day and the price rise.

"Meeting customer requirements for semiconductors produced in our San Jose fab was a primary concern in planning this shutdown," said Rich Beyer, VLSI president and COO. "Beginning today, we're giving customers a full briefing on the phase-out. We will then align our production schedule with their specific product requirements."

Meanwhile, according to Mr. Markow, VLSI is the only semiconductor company that is interested in the planned fab with the other participants being Malaysian-based companies. VLSI has not yet decided to build a fab in Malaysia; however, the memorandum of understanding is the first step toward that process, he said. Building a fab and having it be ready for manufacturing would take approximately 18 months once they decide to break ground, Mr. Markow added.

However, before VLSI starts construction on its prospective new fab, Malaysia might have another fab neighbor in the near future. Intel committed last year $3 billion for three fabs in Ireland, Israel and Malaysia (EN, Oct. 23, 1995). The Ireland and Israel fabs are currently under construction and will be in production in 1998, a spokesperson from Intel said. The Malaysian fab did not have a date for when it would start construction or when it would be on-line.