Rockwell International said Monday that its semiconductor unit would be spun off to
shareholders, which would result in a $625 million special charge. Chairman and CEO Don H. Davis announced in a
letter to company shareholders this was one of several actions the corporation will take to improve the
consistency of its earnings and reposition itself for future global growth.
"The dynamics of Semiconductor Systems are very different from Rockwell's other businesses, including its
markets, products, and investment requirements," Davis said. "We believe by taking this strategic step to operate separately,
and by allowing each company to focus on its own products and markets, we can unlock greater value for each of
these businesses and enhance their ability to achieve their full potential."
The transaction is expected to be completed by the end of the year, and Dwight W. Decker, president of
Semiconductor Systems, will become president and CEO of the new company.
"With all the strategic changes we've made to transform our company during the past two years," Davis said, "we find
ourselves with a higher cost structure than I believe is necessary going forward. We must slim down to stay
competitive in a very competitive world. And as we implement this resizing, the next step will be to change the way
we run the company to ensure that our business structure provides us with a competitive advantage."
The special charge in the third quarter of approximately $625 million will be for costs associated with reducing
Rockwell's worldwide workforce by 3,800 jobs, including facility closures and consolidations, disposal of
nonstrategic product lines, write-offs of certain intangible assets and goodwill, and realignment of various
administrative functions, the Costa Mesa, Calif., company said.
Restructuring, combined with aggressive ongoing cost-reduction initiatives, will generate approximately $100 million
of pretax savings, or 33 cents per share in fiscal 1999.
Davis' shareowner letter also included a third quarter earnings advisory: "We expect sales for continuing
operations which exclude Semiconductor Systems will be about $1.7 billion, up approximately 5 percent over last year's
third quarter. We also anticipate automation sales will be approximately equal to last year's third quarter, while
Avionics will increase about 18 percent, reflecting strong air-transport market growth and higher sales from passenger
Semiconductor Systems will be treated as a discontinued business, Davis said. "Semiconductor Systems will post
operating losses for the third quarter and full year. The third quarter loss is driven by the weak PC modem market
and a work stoppage at our Newport Beach, Calif., facility," he said. "However, modem chip set and unit volume is trending
upward, and we are encouraged that our new expansion product areas are continuing to meet growth and