Fairchild Semiconductor International Inc. is closing down two of its manufacturing facilities as part of a bold initiative the firm is taking to cut costs and enhance manufacturing capabilities.

Fairchild said it will eliminate its internal five-inch and reduce its six-inch wafer fabrication lines by next year. This move involves closing its manufacturing and assembly facilities in West Jordan, Utah, and Penang, Malaysia, as well as the remaining five-inch wafer fabrication lines in Bucheon, South Korea. In an email exchange with EE Times Asia, the company disclosed that the shutdowns will impact 15 per cent or approximately 9,000 of its employees worldwide.

Fairchild, which makes power-management ICs, said it will continue to operate its eight-inch wafer fabs in Maine and Pennsylvania, as well as its six-inch and eight-inch fabs in South Korea. It will also continue to operate its assembly and test facilities in Cebu, Philippines and Suzhou, China.

"The realignment we are announcing today will maximise the utilisation of eight-inch factories and reduce the complexity of our manufacturing footprint, while creating the flexibility to support ongoing customer demand through a greater use of external manufacturing sources," said Mark Thompson, Fairchild's chairman and chief executive, in a prepared statement.

The reason behind the shutdowns in Asia is to get rid of ageing five-inch lines, a Fairchild spokesperson told press. While the industry is moving toward larger wafers, these actions are expected to increase eight-inch wafer production from the current total wafer output of 30 per cent to approximately 75 per cent. Fairchild will then be better able to flex capacity among eight-inch lines and thus ramp up eight-inch development lines to production much faster—costs will be reduced significantly, while quality will improve as well.

"Meanwhile, foundry partners will account for more wafer production, increasing from less than 10 per cent of total wafer output today to up to 30 per cent, enabling higher internal utilisation and lower capital spending," the spokesperson added.

The company expects to achieve between $45 million and $55 million in annualised savings after it completes the cost-cutting measures. In addition, it said that it will incur approximately $36 million in restructuring costs, and plans to record a non-cash charge of $25 million.

Fairchild in California has been working on a strategy to improve its manufacturing execution that it hopes will boost its gross-profit margins to nearly 40 per cent by the end of 2015. Indeed, its gross margins continue to climb. In its second quarter of 2014, gross margin was 33.4 per cent compared to 30.3 per cent in the first quarter of 2014 and 29.1 per cent in the second quarter of 2013.

In 2013, Fairchild closed its eight-inch line at its Salt Lake wafer fab facility and transferred manufacturing to its eight-inch lines in South Korea and Pennsylvania, according to 10-Q documents filed with the Securities and Exchange Commission. Earlier this year, Fairchild said that it was refocusing its efforts on integrated power components for mobile and green electronics, promising to tighten lead times for its products (see Fairchild hops over to mobile, green electronics). It also made a foray into the MEMS market with the $60 million Xsens Technologies BV buyout in May..

During the company's recent earnings call with analysts, Thompson said the company has improved its operations, supply chain, marketing and sales to "enable the steady improvement in revenue and financial performance. In operations, we have reduced cycle times in our factories, significantly improved our management of the supply chain and increased flexibility within our internal and external manufacturing. This has enabled us to maintain short lead times and be more responsive to our customers."

Fairchild posted second-quarter sales of $371.6 million, up eight per cent from the prior quarter and four per cent higher than the second quarter of 2013. Net income was $17.8 million compared to a net loss of $9.3 million in the prior quarter and a net loss of $7.5 million in the second quarter of 2013.

By: DocMemory
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