Motorola Scuttles $3B Plant

Motorola Inc. on Wednesday became the fourth major chip maker to stop U.S. production of computer memory chips, saying it will again shelve plans for a $3 billion plant in Virginia amid the "worst global downturn in semiconductor history."

The Schaumburg, Ill.-based company, the No. 3 maker worldwide of computer chips, blamed falling demand and an industry glut for its decision to halt construction on the West Creek, Va., plant, for the second time since 1995. Motorola warned it plans to suspend other semiconductor construction plans in coming weeks.

An expanded project at the West Creek site was revived in December 1997 and groundbreaking on the plant was to have been held next year. The plant was to have made high-performance chips for pagers and handheld computers and employed as many as 5,000 people.

Motorola's decision follows a strategic retreat recently by three of Japan's largest electronics manufacturers. Matsushita Electric Industrial Co., the world's largest consumer electronics manufacturer, said it will close its computer chipmaking operations in the United States by year's end. The move will affect about 340 employees at Matsushita Semiconductor Corp.'s factory in Puyallup, Wash.

Mitsubishi Electric Corp. also is closing its factory in Durham, N.C., which made 16 and 64-megabit memory chips, and is laying off all 230 workers. Hitachi Ltd. said it would cut 500 jobs by shutting its plant in Irving, Texas, where it built several types of memory chips.

The latest chip plant closings, the most since 1990-91 and unusual during a time when the U.S. economy is still prospering, "is a capitulation by those companies that tried to tough it out," said Andrew Peck, an industry analyst at Cowen & Co. in Boston.

Memory chip prices have fallen more than 70 percent over the past year. And computer chips sales are forecast to fall 2 percent in 1998 to $134.7 billion, according to the Semiconductor Industry Association.

Peck noted the closings are largely the result of overbuilding from 1993-95, as companies foresaw massive profit potential in the face of rapidly rising chip prices.

While Motorola has been struggling against problems in other sectors, analysts say it has been hurt more on the semiconductor side, where it gets nearly 25 percent of its revenues.

The Asian economic crisis not only slowed demand to that region, but Asian chip manufacturers then flooded the market with chips made cheaper by weaker foreign currencies.

Written By Cliff Edwards