AUSTIN, Texas Motorola Inc. pushed ahead with its "asset-light" strategy last week, announcing thousands of engineering and other layoffs and widening its embrace of Taiwan Semiconductor Manufacturing Co. (TSMC) for additional foundry capacity.
A spokeswoman at corporate headquarters in Schaumburg, Ill., said Motorola's engineering work force will take the largest hit among major job categories in a 7,000-person layoff. Sales and administrative staff, and then manufacturing, will also be hit hard in the latest round of cuts. Motorola plans to reduce its worldwide work force to 93,000, down from 150,000 at the peak of the tech boom in 2000.
The job cuts will be spread out over the next four quarters, mostly in North America. The largest work force reduction will come at Motorola's wireless infrastructure business in Rosemont, Ill., where 3,000 layoffs are expected, said the spokeswoman.
With an eye to keeping its accounting practices above reproach, Motorola said it will write down the value of several of its semiconductor fabs to their fair-market value. A spokesman said no fab closings are expected.
Motorola is knee deep in an effort to reduce its break-even point, cutting expenditures by 20 percent. Even as it confirmed that revenue in the second quarter would hit the predicted $6.4 billion mark, the company reiterated that sales are expected to decline an additional 5 to 10 percent for the year overall.
Motorola's asset-light strategy includes closing and consolidating manufacturing lines and outsourcing their work. As part of that strategy, Motorola said last week, on the day before the layoffs announcement, that it has signed a "broadened agreement" with TSMC aimed at securing additional capacity with the Taiwanese foundry giant. The agreement is designed to give Motorola "advanced CMOS capacity at TSMC," while Motorola internally continues to develop specialty processes such as gallium arsenide, silicon germanium and, in the future, magnetoresistive RAM, "giving us competitive advantages there," the spokesman said.
Bill Walker, senior vice president in charge of manufacturing at Motorola, said in a statement that the broadened relationship with TSMC "offers Motorola an assured supply of external capacity, while reducing fixed costs and lowering the risk associated with major internal capacity expansions."
The deal christens TSMC as Motorola's major foundry partner. While Motorola does business with UMC, Chartered, Tower and several other foundries, the spokesman said TSMC will receive "a large portion" of the company's ongoing foundry business. TSMC and Motorola have worked for several years to make their respective processes compatible on both an electrical and a design-rule basis.
In search of compatibility
Walker said the recent pact among Motorola, Philips, STMicroelectronics and TSMC is aimed at developing a more-compatible leading-edge process technology. As a complement, the new agreement announced with TSMC "guarantees us additional access to world-class external manufacturing capacity aligned with the jointly developed process technology."
Motorola's capital expenditures for this year have been cut to about $200 million, enough to keep its existing fabs efficient but not to expand capacity. Meanwhile, TSMC has upped its capital expenditures for 2002 to $2.5 billion, much of it going to two 300-mm fabs being ramped in Hsinchu and Tainan, Taiwan.
Rick Tsai, president of TSMC, said TSMC's total manufacturing capacity is expected to nearly double to 8 million wafers by the end of 2006, "allowing us to easily satisfy the immediate and future needs of Motorola and all of our foundry customers."
In the early stages of Motorola's work with foundries it was the lower-performance products, such as 8- and 16-bit flash controllers and other volume parts, that were outsourced. Even then, Motorola dual-sourced the parts at internal as well as foundry-owned fabs. Now, Motorola is moving its leading-edge products out to TSMC, including 32-bit PowerPC-based controllers.
The PowerPC microprocessors the company makes for Apple Computer Inc. will continue to be built at a Motorola fab in Austin, but other PowerPC-based embedded controllers could be manufactured at TSMC, on a case-by-case basis, a spokesman said.
One source, who recently left Motorola, said the transition to foundry and contract-assembly operations has been painful for product managers at the company. When both front- and back-end resources were in the same city, or split between Austin and Phoenix, getting solutions for customers was a job that could be handled in a matter of days, the source said. If a customer complained about a packaging issue, it could be quickly dealt with at the now-closed packaging operation in Austin, he noted, and glitches at the fab also could be dealt with face-to-face.
"It's going to be difficult for many of the Motorola people to adjust to the communications problems involved with going to Taiwan for an answer," the source said.
Alex Pepe, a vice president in the technologies and manufacturing operation at Motorola's Semiconductor Products Sector, said the company remains committed to a balanced strategy of internal and external manufacturing. "Our leading-edge CMOS products will be sourced both internally and externally," he said. "Working with our customers, we'll make those decisions for specific products. The TSMC agreement is not product-specific."
90-nm production split
Asked if Motorola would invest in its internal 90-nanometer fab capacity going forward, Pepe said, "Although we're aligning our 90-nm plans with TSMC's capabilities, we're not sole-sourcing our advanced CMOS there. [Austin fab] MOS 13 will continue to be among the internal sources for our 90-nm manufacturing, and we will develop multiple internal and external options" for 90-nm production.
Motorola no longer will identify exactly how much of its front-end wafer-processing business is going out to foundries. "About 17 percent of both front- and back-end [capacity] is outsourced now, and we expect that to go to about 25 percent by the end of this year," Pepe said. "We're steadfastly committed to the competitive advantage provided by our internal production going forward. We'll maintain a strategic balance of internal and external manufacturing."
Though former Semiconductor Products Sector president Hector Ruiz at one time said Motorola would outsource 50 percent of its manufacturing capacity, that plan ran into the reality of the 2001 downturn. Back-end assembly and test have continued to move out to contractors, but front-end wafer outsourcing has actually shrunk during the downturn.
The current president of the semiconductor operation, Fred Shlapak, reminded reporters at Semicon Europa in 2001 that foundries too expect to make hefty profits, arguing that Motorola's internal fabs were more efficient than foundries at cutting-edge design rules.
A spokesman estimated that front-end foundries and back-end test and assembly operations accounted for 30 percent or more of Motorola's overall chip manufacturing during peak demand two years ago, a number that has shrunk to 17 percent.
Asked if Motorola's long-term plans are to get out of chip manufacturing altogether, the spokesman said the company plans by the end of this year to consolidate on eight front-end fabs and three Motorola-owned test-and-assembly operations. "We have a very strong commitment to those facilities and to our internal manufacturing capabilities," the spokesman said.
Early this year, Motorola announced the closing of its test-and-assembly facility in Hong Kong, eliminating 800 to 900 jobs, and shuttered its back-end operations in Sendai, Japan, and in Austin. Most of the company's internal back-end operations are now handled in Kuala Lumpur, Malaysia, and Tianjin, China.
The asset-light strategy was announced at the beginning of this year, shortly after Edward Breen assumed the job of president and chief operating officer at Motorola. Breen, viewed by Wall Street as capable of introducing efficiencies into Motorola's far-flung operations, had been the chief executive officer at General Instrument Corp., which Motorola acquired in January 2000.
In a statement last week, CEO Chris Galvin said the job cutbacks are needed because "the investment environment of the late 1990s may never repeat itself, and because many of the business models so highly touted then never succeeded in the first place. This comprehensive restructuring purposefully returns Motorola to approximately its mid-1990s size, the era prior to the excesses of the telecom and dot-com booms. Going forward we will grow our broader base of businesses to serve many real fundamental needs of the global society."